Seven policymakers of the Monetary Policy Committee voted to keep the key interest rate at 0.50% with Ian McCafferty and Martin Weale preferring to increase Bank Rate by 25 basis points.
The argument for the rate increase surrounded unemployment reaching its estimated medium-term equilibrium level by the middle of 2015, and a tightening in the labour market suggesting that wage growth might pick up sharply as slack was absorbed.
The minutes stated:
"The most recent data regarding private sector average weekly earnings raised the possibility that this process was already in train.
"Since monetary policy could be expected to operate only with a lag, it was desirable to anticipate labour market pressures by raising Bank Rate in advance of them.
"It was possible that the real rate of interest consistent with stable inflation over the medium term was now rising. In the judgement of these members, even after a rise of 25 basis points in Bank Rate, monetary policy would remain extremely supportive and an early rise would facilitate the Committee’s aspiration that any subsequent rises in Bank Rate should only be gradual."
The MPC unanimously decided to maintain the asset purchase programme at £375 billion.
With regards to the housing market, the policymakers noted that mortgage approvals for house purchase had fallen by 3,000 to 61,000 in September, and data on loan applications suggested that another reduction was in prospect in October.
The average of the main lenders’ house price indices had been roughly unchanged in October. In the three months to October, it had risen by a little over 1%, compared with the rates of around 2.5% seen earlier in the year.
Provisional data from the RICS survey that had been supplied to the committee indicated that the net balance of market practitioners’ expecting prices to increase over the next three months had fallen back to close to zero in October from +12 the previous month. New buyer enquiries had fallen to their lowest since August 2008. The weaker outlook for the housing market was likely to lead to a softening in housing investment.
Commenting on the minutes, Gautam Batra, Investment Strategist at Signia Wealth, said:
“Whilst recent commentary from Mark Carney suggests that an interest rate rise from the MPC looks increasingly distant, the Bank of England will be forced into action next year as the resilient UK economy pushes its limits.
“The greatest challenge to the committee’s hawks are poor Eurozone growth, a housing market coming off the boil, lower than expected inflation and the spectre of a major political shift with the general election just five months away. However, as the employment situation continues to improve, capacity is slowly eroding and wages are showing signs of an upturn. Expectations of a first interest rate increase in the UK soon after polls have closed seem likely to be fulfilled.”
