BOE Officials Split as Weale, McCafferty Seek Rate Increase

By Jennifer Ryan  Aug 20, 2014

The Bank of England said two policy makers wanted an interest-rate increase this month, marking the first split on borrowing costs in more than three years.

Martin Weale and Ian McCafferty voted to increase the benchmark rate by 25 basis points from a record-low 0.5 percent, according to the minutes of the Monetary Policy Committee’s Aug. 6-7 meeting. The remaining seven members, including Governor Mark Carney, opted to keep the rate on hold, saying early tightening could leave the economy “vulnerable to shocks” and jeopardize indebted households.

In their analysis, Weale and McCafferty said economic circumstances “were sufficient to justify an immediate rise in bank rate” and the MPC needed to move in advance of potential labor market pressure. They also said that even after a 25 basis-point increase, policy would remain “extremely supportive.”

“An early rise would facilitate the committee’s aspiration that rises in bank rate should be only gradual,” the minority of the MPC said. While there would be risks associated with the first rate increase since the recession, “it was unclear that these risks would be lessened, and indeed possible they would be augmented, by delaying that increase.”

Weale also voted against forward guidance, which Carney introduced shortly after becoming governor in 2013.

The pound jumped against the dollar after the minutes were published, and traded at $1.6658 as of 9:36 a.m. London time, up 0.3 percent from yesterday.

Wage Growth

The release of the voting record follows the publication of the BOE’s quarterly Inflation Report on Aug. 13, in which it cut its forecast for wage growth and said inflation would remain below the 2 percent target throughout its forecast period. At a press conference that day, Carney said it wasn’t yet time to begin tightening policy.

“For most members, there remained insufficient evidence of inflationary pressures to justify an immediate increase,” the majority of the MPC said in the minutes today. “There would be merit in waiting to see firmer evidence that solid increases in pay growth were in prospect before tightening.”

The minutes also showed that some MPC members are uncertain about the usefulness of slack as a guide to policy. While Carney has put it at the center of his analysis, the MPC has a “wide range of views” on the amount remaining in the economy.