UK interest rate rise looks less likely, MPC minutes show

The Bank of England’s monetary policy committee says recent economic indicators have reduced the likelihood of a rate rise The Bank of England’s monetary policy committee judged that recent economic weakness had reduced the chance that interest rates would need to rise in the near term, minutes to its July meeting showed. Committee members voted 7-2 to keep rates at 0.5%, as they did in June. Chief economist Spencer Dale and external member Martin Weale voted again to raise rates, while at the other end of the spectrum, Adam Posen repeated his call for more quantitative easing (QE). The MPC said indicators had pointed towards continued modest underlying GDP growth in the second quarter, but some softening in the outlook for the third quarter. It said the risks posed by an escalation of the eurozone debt crisis remained substantial and funding costs faced by major UK banks remained elevated as a result. “Recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term,” it noted. Inflation eased to 4.2% in June but remains more than double the Bank’s target. The MPC said recent increases in food and utility prices meant it was likely that inflation would peak higher and sooner than previously thought, but the majority remained confident that it would fall back to target in the medium term. The Bank said the balance of risks to medium-term inflation has altered little over the month and risks remained substantial in both directions. “If it were to become clear that one of those risks had crystallised – and the medium-term outlook for inflation had deviated materially from the target in either one direction or the other – the committee would respond by changing the stance of monetary policy.” Unlike last month, the minutes made no explicit mention that any member other than Adam Posen had mulled the need for further asset purchases. The Bank bought £200bn of financial assets – mostly British government bonds – with newly created money between March 2009 and February 2010 in an attempt to steer the economy out of recession. In recent months, several policymakers have flagged the possibility that more QE may be needed if the recovery derails. Britain’s economy slammed into reverse at the end of last year and weak economic data have raised fears that GDP may have contracted again in the second quarter. Investors have pushed back bets on the timing of an interest rate rise until the second half of next year, and some analysts believe rates could stay at their record low for a good deal longer. Interest rates Bank of England Economics guardian.co.uk

Posted by on July 20, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.