EXPECTATIONS that UK base rates will remain at a record low for a while longer have been reinforced by minutes of the Monetary Policy Committee's latest meeting, at which downward pressure on inflation from tumbling oil prices was discussed at length.
At the December 3 and 4 meeting, members of the nine-strong Bank of England committee also noted that wage growth would have to accelerate to be consistent with the two per cent target for annual UK consumer prices index inflation set by the Treasury.
Minutes of the meeting, published yesterday, show another seven-to-two vote to hold UK base rates at 0.5 per cent, where they have been since March 2009.
External MPC members Martin Weale and Ian McCafferty continued to push unsuccessfully for an immediate quarter-point rise in UK base rates.
Setting out the views of the majority voting to hold rates, the minutes state: "Inflation in the coming months would be pushed further below the target by the contribution from energy prices and lagged effects of sterling's appreciation, and was set to remain below the target, even after these effects had passed through, for a significant period.
"Recent signs of a pick-up in wage growth were promising. But, as yet, pay growth was only roughly in line with, rather than in excess of, productivity growth. Consequently, domestic cost growth remained lower than would be consistent with the inflation target. Further increases in pay growth, as labour market slack continued to decline, would be required to be consistent with the two per cent inflation target in the medium term."
Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "The December MPC minutes are likely to reinforce belief that the Bank of England will not be raising interest rates before late 2015, and could very well wait until 2016."
The latest minutes again signal differing views among the MPC majority about the upside and downside risks to the inflation outlook, although they do not signal that any of the members in the majority camp are about to join Mr Weale and Mr McCafferty in pushing for a rate rise.
They state: "There was a risk that growth might soften further than anticipated and, even absent that, a risk that inflation might persist below the target for longer than expected. This latter risk had, if anything been exacerbated by the continued decline in oil prices. A premature tightening in monetary policy would leave the economy vulnerable to shocks, with the scope for any stimulus that subsequently became necessary being limited."
The minutes add: "Against this, however, there was also a risk that the degree of spare capacity could be eliminated more quickly than previously assumed, particularly if Bank Rate were to follow the path implied by market yields, which had declined further on the month.
"This could occur if, for example, there were less spare capacity in the economy than currently believed or if growth in major export markets were stronger than expected. That could result in inflation rising to, and subsequently overshooting, the two per cent target. As before, individual members ascribed different probabilities to these risks."
Mr Archer said: "Martin Weale and Ian McCafferty are still doggedly calling for an immediate raising of interest rates from 0.5 per cent to 0.75 per cent as they have been since August, but they actually remain isolated in this view.
"Indeed, there are perhaps fewer signs in the December minutes that any of the other seven MPC members could move to the interest rate hike camp any time soon."
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