Three members vote for rise
Bank edges closer to raising interest rates
Ian McCafferty, Michael Saunders and Kristin Forbes all backed a rate rise in the light of rising inflation.
It is at a near four-year high of 2.9% against the MPC’s target rate of 2%. It is forecast to hit 3% next month. The vote prompted a surge in the pound.
Interest rates were cut to 0.25% last August following the Brexit decision and today’s narrow vote was the closest the MPC has come to an increase since 2007.
Richard Berry, founder of the currency firm Berry FX, said: “Sterling’s response was worthy of a cat on a hot tin roof. True, the pound’s gravity-defying rise was magnified by the surprise factor – no-one had expected such a dovish surge among the Bank’s rate-setting grandees.
“The markets are recalibrating to the idea that an interest rate rise could be coming, and soon.
“For weeks, the mood music from the Bank has been that it would continue to ‘look through’ inflation for some time to come. But this week’s revelation that consumer prices in the UK are now rising could prove a turning point.”
The decision today came as little comfort to savers.
Maike Currie, investment director for personal investing at Fidelity International, comments: “It’s now 100 months and counting since savers have had to put up with record low interest rates of 0.5% or lower.
“Despite this it’s come as little surprise that the Bank of England’s Monetary Policy Committee (MPC) is still in no hurry to hike rates from their historic lows.
“Interest rates were first cut to 0.5% back in March 2009 and savers were dealt a fresh blow when rates were cut even lower to 0.25% in August 2016. Anyone who has had their money sitting in cash over this period would have struggled to make a real return on their savings.
“With inflation back with a vengeance and little prospect of the Bank of England hiking interest rates any time soon, it continues to be a sensible strategy for investors to look to the stock market for returns that are more likely to keep abreast with price rises over the long term.”
Calum Bennie, savings analyst at Scottish Friendly, said: “The decision to leave interest rates unchanged for fear of upsetting the struggling UK economy means that for the time being we have to resign ourselves to higher prices and wages that don’t keep pace.”