All members viewed it as more likely than not that Bank Rate would increase over the next three years, however for one member, the next change in the stance of monetary policy was roughly as likely to be a loosening as a tightening.
The MPC said that "market expectations of the future path of interest rates could adjust to reflect an even more gradual and limited path for Bank Rate increases than was currently priced."
The minutes stated:
"The Committee could also decide to expand the Asset Purchase Facility or to cut Bank Rate further towards zero from its current level of 0.5%. The scope for downward adjustments in Bank Rate reflected, in part, the fact that the UK banking sector was now operating with substantially more capital than in the immediate aftermath of the crisis. Reductions in Bank Rate to below 0.5% were therefore less likely to have undesirable effects on the supply of credit to the UK economy than previously judged by the MPC."
All Committee members agreed that it was currently appropriate to leave the stance of monetary policy unchanged. For two members, the immediate policy decision remained finely balanced: given the outlook for inflation beyond the short term, there could well be a case for an increase in Bank Rate later in the year.
However the expected pace of tightening thereafter had slowed further, with the implied level of Bank Rate at the end of 2017 below 1.25%.
The meeting largely centred around CPI inflation falling to around zero in the February data and likely remaining close to that level for several months. The near-term projection was considerably lower than it was three months ago, and it is now more likely than not that CPI inflation would dip briefly below zero at some point in the first half of 2015, with inflation judged likely to remain close to zero for most of 2015.
Moreover, the MPC judged that the period of low inflation expected over 2015 posed a downside risk to inflation over the first half of the projection: the factors pulling down inflation could prove more persistent than expected.
The persistence of those headwinds, together with the legacy of the financial crisis, meant that Bank Rate was expected to remain below average historical levels for some time to come. The actual path Bank Rate would follow over the next few years was uncertain, and would depend on economic circumstances. The Committee’s guidance on the likely pace and extent of interest rate rises was an expectation, not a promise.
Going forward, the Committee said it would seek to set monetary policy so that it was likely that inflation would still return to the 2% target within two years.
