MPC duo maintain call for interest rate hike
The MPC’s Ian McCafferty and Martin Weale voted for a 25bps hike in the base rate in September, with the remaining seven members of the committee voting to keep rates on hold.
The 7-2 split mirrored that seen last month, and comes despite subdued levels of headline inflation and wage growth.
CPI inflation figures out yesterday dropped back to a post-crisis low of 1.5%, while today’s wage growth statistics showed average earnings rose at an annualised rate of just 0.6% between May and July.
The minutes of the MPC meeting held on 3 and 4 September, however, show that McCafferty and Weale believe wage inflation may soon rise quickly, and that overall price growth has been masked by a stronger pound.
“For two members, economic circumstances were sufficient to justify an immediate rise in [the] Bank rate. While CPI inflation was below the target, and was likely to fall further in the near term, this was largely the effect of the exchange rate rise in the first part of the year,” the minutes said.
“Meanwhile the economy continued to grow at a pace consistent with the rapid absorption of slack […] survey evidence of tightening in the labour market suggested that wage growth might pick up quite sharply as slack was absorbed.”
The remaining seven members of the committee maintained, by contrast, that hiking the base rate may leave the economy vulnerable to future shocks and increase the “vulnerability of highly indebted households”.