Following its latest policy meeting, the Bank of England Monetary Policy Committee (MPC) maintained interest rates at 0.25%. Consensus expectations were also for rates to be left unchanged.
There was a 7-2 vote for the decision which was also in line with consensus forecasts from a 6-2 vote at the previous meeting. McCafferty and Saunders again voted for an immediate increase in rates to 0.50%.
For this meeting, the committee was back to full strength following the appointment of Ramsden to the committee in early September.
There were no changes to the quantitative easing programme.
In the policy statement, the committee saw the potential for interest rates to increase within the next few months if the economy grows as expected and underlying price pressures rise.
All MPC members also judged that policy could need to be tightened faster than the market expects.
The bank forecast that inflation was likely to increase to above 3.0% in October compared with the previous forecast of around 3.0% while there was no change to growth forecasts.
There were also comments that spare capacity is being absorbed at a faster pace than expected which will reduce the MPC’s tolerance for above-target inflation. July wages growth was also above the level consistent with the August inflation report, although there was no evidence of a sustained pick-up.
There were still comments that considerable risks and uncertainties remained.
The overall rhetoric was slightly more hawkish than expected and there will be additional speculation that the bank could make a move to raise rates at the key November policy meeting, especially given the comments on diminishing slack in the economy.
Sterling moved sharply higher following the release with GBP/USD pushing towards 1.3300 from 1.3205 while EUR/GBP declined to fresh 5-week lows below 0.8950. Gilts moved lower with a decline of over 30 ticks on the day.