LONDON — On Thursday afternoon the Bank of England left interest rates unchanged for another month, surprising no one at all.
However what did surprise some was how the UK’s central bank voted for that hold.
The bank’s eight member Monetary Policy Committee (it is usually made up of nine people, but has stood at eight since the resignation of Charlotte Hogg in March) voted 5-3 in favour of holding rates, with three MPC members backing a hike in the bank’s base rate.
That was the highest number of members to back a hike for some time and was just one member away from a split vote, a situation that hasn’t occurred since 1998. In that circumstance, Governor Mark Carney would have held the casting vote.
Those members who did back a hike cited concerns about inflation overshooting its government mandated target of 2% substantially in recent months as their reason for backing a hike.
Falling sterling has pushed up the price of importing goods, passing through to everyday items that regular Brits buy.
This is now showing up in official inflation data, which at the latest reading sat at 2.9%.
Thursday’s minutes — which explain what the MPC discussed and the reasons for their decisions — indicate that it may not take much more inflation overshoot to push them to vote to raise rates.
A rate hike may not exactly be likely in the near future given the expected weakness in the economy triggered by Brexit related uncertainties, but it is now certainly possible. That could mean a little excitement being added to what is one of the most boring charts in the entire world of economics right now — the chart of the bank’s base interest rates.
The BoE aggressively cut interest rates during the 2007-2009 period in order to cope with the shock brought to the British economy by the global financial crisis, but remained on hold for more than seven years after that. Between 2009 and August 2016 the base rate stayed at 0.5%.
It then dropped to 0.25% after the bank’s emergency cut in August, which intended to soothe the economy in the immediate aftermath of June’s Brexit vote.
This lack of policy action makes for some pretty dull reading in terms of graphics, as you can see below: