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MPC minutes show no change to base rates as consumer savings take a hit

FURTHER signals that the Bank of England is in absolutely no hurry to raise UK base rates from their record low have emerged from minutes of the latest meeting of its Monetary Policy Committee.

The minutes, published yesterday, indicate all members of the nine-strong committee were in agreement on its expanded "forward guidance" on monetary policy, unveiled along with the Bank's quarterly inflation report last week. There is no mention of any differences of opinion.

Worries on the MPC about the possibility that households could cut spending sharply, given weak income growth and the degree to which consumption has in recent times been fuelled by people saving less, are also evident from the minutes.

Detailing MPC members' discussions at their meeting on February 5 and 6, at which they voted unanimously to hold base rates at 0.5% and maintain their quantitative easing programme at £375 billion, the minutes state: "With activity in the UK's main trading partners recovering only slowly, the upturn in the domestic economy had so far been characterised by a reduction in private savings.

"This reduction in savings had been supported by a revival in confidence and reduced uncertainty."

While noting a view on the MPC that, in the near term, the recent trend of households funding consumption growth by saving less was likely to continue, the minutes add: "Continued household spending recovery would need to be driven more by income growth, which was expected to pick up only modestly: that meant consumption growth was likely to moderate.

"But there were risks to the outlook for consumption from the fall in households' saving. For example, if households had unrealistic expectations of rapid income growth, they could cut spending quite sharply as they came to realise that income was not rising so fast. Highly-indebted households might be especially vulnerable."

Bank of England Governor Mark Carney declared last week that the MPC was, for the first time, providing guidance that it was seeking to absorb all the spare capacity in the economy over the next two to three years. He added that the MPC was also giving guidance that it judged there remained scope to absorb spare capacity further before raising rates.

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