The Monetary Policy Committee (MPC) of the Bank of England (BoE) unanimously voted in favor of maintaining the current set of monetary policies, according to the minutes of the central bank meeting published on Wednesday.
INTEREST RATE BETTING
The BoE on July 10 announced that the bank rate would stay at 0.5 percent and the stock of asset purchases, or quantitative easing policy, would be maintained at 375 billion pounds (639 billion U.S. dollars).
The MPC said members had no specific timeline for the first increase in the bank rate, the benchmark interest rate, which would be driven by economic data. Against this backdrop, the nine-member committee agreed that no increase was warranted at the meeting.
DATA DRIVEN
The consumer price index (CPI) had risen unexpectedly to 1.9 percent in June, 0.4 percentage points higher than the bank's expectation.
The MPC said that it would require further analysis, but it might in part have reflected a change in the timing of summer sales compared with 2013. It believed there were quite a few signs of wage-driven inflation momentum.
Meanwhile, the MPC stressed that employment had continued to increase robustly, both in numbers employed and hours worked, and by more than the Committee had expected in May.
However, wage growth had been surprisingly weak, with data showing that annual growth in average weekly earnings had fallen to 0.7 percent in the three months to April from 1.4 percent in the three months to January.
Regarding the economic outlook, the MPC reckoned that the recent trend of activity growth in Britain at or slightly above longer-term averages had continued, and sustained economic momentum was looking more certain.
The MPC expects a 0.9 percent expansion of GDP in the second quarter of 2014, higher than the 0.8 percent recorded in the first quarter.
BoE revised up its economic projection for 2015 to 2.9 percent from 2.7 percent, and kept its 2014 projection at 3.4 percent in its quarterly inflation report released in May.
CROSS ROADS
With the minutes of the July meeting indicating mixed signals on monetary policy, economists are looking towards next month's inflation report and data in the coming months.
John Bulford, economic adviser to the EY ITEM Club, commented in a note: "The MPC has reached a cross roads, and next month's inflation report should give us a much clearer picture of the road the MPC will go down. In contrast to the previous inflation report, which signaled that interest rates would remain on hold for some time, the inflation report in August will be a lot more balanced in its conclusions."
"The bank's estimate of slack in labor market will almost certainly have narrowed, although this will be accompanied with a greater degree of uncertainty. Overall, this should result in a more hawkish steer," noted Bulford.
Samuel Tombs, senior UK economist at Capital Economics, said in a analysis piece: "The minutes of July's MPC meeting contained further signs that the committee is edging closer to raising interest rates. While we think that the MPC will be cautious and wait until early 2015 to tighten, the chances of a 2014 hike are building."
He added a fall in inflation and a desire for caution will persuade the MPC to hold rates until early next year, though one or two members may vote to raise rates within the next few months. (1 pound = 1.71 U.S. dollars)
