Ian McCafferty and Martin Weale wanted to raise the Base Rate to 0.75 per cent at the meeting, with Weale having publicly advocated a rise since 2011.
Weale and McCafferty argued the continued and rapid decrease in unemployment could start affecting inflation through wage growth soon, and the interest rate needs to be raised in advance to be effective. If wage growth did spike suddenly, consumer business margins are healthy enough for them to absorb much of the increase before starting to pass it on, they say.
They noted that a financial market reaction to the first increase could create risks to the recovery, but the chance of it happening and its consequences are unlikely to lessen over time, McCafferty and Weale say.
It is possible the risks may be “augmented” by delaying the rate increase, they say.
The members in favour of holding the rate at 0.5% believed inflation was too subdued to warrant an increase.
An increase in the rate may also push sterling higher, dampening inflation further and impede the rebalancing of the UK economy.
Jeremy Duncombe, Director, Legal & General Mortgage Club, comments:
“For the first time in years we are seeing some members of the MPC voting to increase interest rates. This highlights that the discussion on a rate rise has moved from an ‘if’ to a ‘when’. Our latest Mortgage Mood survey shows that 68% of homeowners think there is likely to be a rate rise in the next year. Whilst there is still some debate about exactly when this will happen borrowers need to consider the impact it will have on their finances now. With many lenders already pricing in increased rates those who are coming to the end of their mortgage deals should speak to an adviser about the best option for them sooner rather than later.”
