BoE round-up: Economists see 2015 hike in Bank Rate as most likely
While the 7-2 vote was more hawkish than expected, with only around 5% of economists having anticipated such an outcome, it was not surprising that it was Weale and McCafferty who dissented. However, it is not obvious that others on the MPC will join them. Nevertheless, whether Carney is speaking for himself or attempting to convey the aggregate view of the MPC, when he speaks following each Inflation Report, may now be put more in question. Furthermore, some of the newest members on the Committee may be at least somewhat inclined to stick with the majority until they find their feet a little better. So overall, even after today's surprise, we maintain our expectation of a first rate rise in February next year. - Bank of America Merrill Lynch
The minutes reveal the MPC's members hold a wide range of views regarding the degree of slack which now exists in the economy. Nevertheless, support for a rate increase should grow in the coming months and the first hike take place before year end. However, given growing international risks and the weakness of the euro area economy the level of uncertainty surrounding the precise timing is high. Some of the MPC's members also put forward the argument that Bank should be mindful of the possible impact on the exchange rate. Nevertheless, the pace of rate hikes should be slow and, in particular, come down further in the second half of 2015 as economic growth moderates and fiscal policy is tightened following the elections. - Barclays Research
The minutes revealed the first split on the MPC since July 2011, such that a rate hike in 2014 cannot be ruled out. Even so, the low inflation outlook would seem to indicate that the balance of risks is still pointing in favour of a delay until early next year. Despite the reaction in financial markets, we doubt news of a 'split vote' indicates that the outlook for policy has materially changed. Weale and McCafferty's hawkishness is a well-known feature of the landscape at the central bank. As well, the weakness in pipeline pressures suggests that inflation is still on track to ease much further than the MPC expects this year and to remain weak in 2015. For now the most likely date for the first rate rise is February 2015. - Capital Economics
For most members on the MPC there was "insufficient evidence" that the existing inflationary pressures sufficed to justify a rate hike. Thus, on the basis of the market implied path for Bank Rate - which only foresaw a 10 basis point increase in the fourth quarter and a gradual path thereafter - inflation was expected to reach the 2% target "only at the end" of the three year forecast. The minutes show that there is a big gap between the dissenters on the one hand and most members on the other. As well, the recent incorporations to the Committee over the last few months show the balance of power now lies with the Governor. - Unicredit Research
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