Sterling rises as minutes show MPC more positive on Eurozone

The Bank of England turned more positive on the outlook for the Eurozone economy, with all members of the Monetary Policy Committee now seeing an increase in Bank Rate as "more likely than not" over the coming three years, the minutes of their last policy meeting showed.

At the meeting held on 8 and 9 April the Bank´s rate setters concluded that if the recent pick-up in economic growth in the Eurozone were maintained that would have a positive effect on the UK despite the strengthening in the pound.

However, weak indications for growth in China and the US meant that recent developments overseas had been broadly neutral for Britain.

The current policy settings were maintained by a 9-0 vote, as expected by analysts.

Initial market commentary also latched on to a phrase in the minutes which read: "[...] all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period."

According to some observers, they appeared to negate remarks from the Bank´s chief economist Andy Haldane, on 17 April, that the chances of a rate rise "in the immediate period ahead" were now "broadly, evenly balanced".

Policymakers also aired their dismay at the still poor readings on labour productivity, which they described as “puzzlingly weak”.

As such, with recent rises in economic output having eaten away at the excess capacity - or slack - existing in the economy, it is less likely that growth could continue at the same pace without generating greater inflationary pressures.

The MPC still saw a risk of weak price pressures persisting for longer than would be consistent with bringing inflation back to target within two years.

However, most long-term measures of inflation expectations were judged to be broadly consistent with the Bank´s 2% target for inflation, the MPC concluded.

“The Committee will take stock of the current position and outlook for supply growth, and hence the prospects for wages and prices, in the forthcoming forecast round,” the minutes read.

As of 10:19 and following the release of the minutes sterling could be seen 0.6% higher at 1.5028 versus the US dollar.