ECONOMISTS have forecast UK base rates could rise significantly earlier than markets had been expecting, after the revelation that there was a significant spread of views among the seven Monetary Policy Committee members voting to keep them on hold.
Market expectations of the timing of the first rise in rates from their record low of 0.5 per cent have in recent times been pushed back consistently. In the wake of a dovish quarterly inflation report from the Bank of England last week, market expectations of the timing of the first rate rise drifted out towards the end of next year.
But minutes of the November 5 and 6 meeting of the Bank's Monetary Policy Committee, published yesterday, raised a question-mark over whether the MPC would hold off from raising rates for so long.
Detailing the views of the seven-strong majority which has voted in recent months to hold rates, as MPC members Ian McCafferty and Martin Weale have pushed unsuccessfully for a quarter-point rise, the minutes state: "Among the members in this group, there was a material spread of views on the balance of risks to the outlook. There was a risk that growth might soften further than anticipated and inflation might persist below the target for longer than expected.
"In that case, a premature tightening in policy would leave the economy vulnerable to shocks, with the scope for any stimulus that subsequently became necessary being limited ...
"Against this, however, there was also a risk that the degree of spare capacity would be eliminated more quickly than assumed in the November [inflation] report's central projections, were Bank Rate to follow the path implied by market yields.
"That would potentially result in inflation rising to, and subsequently overshooting, the two per cent target. Individual members ascribed materially different probabilities to these risks."
Samuel Tombs, senior UK economist at consultancy Capital Economics, said: "The minutes ... struck a more balanced tone than last week's inflation report, and signalled that it might not take much stronger news on wages or growth for other members to join the two already voting to raise rates.
"We continue to think that a majority of MPC members are likely to vote to raise rates in Q2 2015 - around six months earlier than markets currently expect."
Howard Archer, at consultancy IHS Global Insight, said: "While the November MPC minutes are unlikely to hugely dilute increased expectations that the Bank will not be raising interest rates before late 2015, they suggest that a move around August is still possible."
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