For the fourth meeting in a row two of the MPC members, McCafferty and Weale, voted for a 25bp rate hike, according to the MPC minutes from the 5-6 November.
The minutes stated that the MPC members are split on the inflation outlook. On the one side, a premature tightening in monetary policy could be harmful for the economy given the weaker global growth along with the risk of a longer than expected period of below target inflation. On the other hand, there is a risk that the degree of spare capacity would be eliminated more quickly than assumed in the November Inflation Report. That would potentially result in increased inflation, and subsequently overshooting the 2% target.
However, for most members the outlook for inflation in the medium term justified maintaining the current stance of monetary policy. The Committee voted unanimously to keep the issuance of central bank reserves at £375 billion.
Our forecast is that the BoE will start to hike rates in June 2015. However, given the low inflation pressure there is a risk that a first rate hike will come later.
Nordea