MPC minutes: The Bank of England is less worried an interest rate hike will harm recovery

The minutes of this month's Monetary Policy Committee meeting suggest it's less frightened of the impact of a rate rise - although analysts are still pretty set on early 2015 as the first time rates will go up.

by Emma Haslett
Last Updated: 18 Aug 2014

It’s been 64 long months since the Bank of England’s Monetary Policy Committee, which sets interest rates, cut rates to 0.5% in an attempt to turn the economy round. And now it sounds like, for the first time in ages, the group is finally open to the idea of raising them again.

Minutes of the MPC’s July meeting suggest members were a little less worried than usual about the impact a rate rise would have on recovery: as the economy finds its feet, the members reckoned, a higher bank rate is less likely to derail recovery.

Then again, in the end they all voted unanimously in favour of holding the bank rate at 0.5%, largely because they were concerned about weakness in the labour market. But this is an indication the committee is becoming more open to the idea of a rate rise.

Does this mean there could be a change before early 2015, when most people expect a interest rates to go up? Er - unlikely, says Ben Brettell, senior economist at Hargreaves Lansdown.

‘Those hoping for a November rate rise could be disappointed - the labour market remains weak, with productivity still substantially below trend and wage growth virtually non-existent.

‘In today’s minutes, the committee noted that uncertainty about the degree of slack in the labour market has risen,’ he added. ‘I believe the MPC will want to see hard evidence that spare capacity in the labour market has been absorbed before considering higher interest rates.’

Oh well.

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