MPC split on interest rates decision

<p>Minutes from a MPC meeting showed two members to be in favour of increasing rates.</p>

The Bank of England's Monetary Policy Committee (MPC) is split on a decision over whether or not to increase interest rates.

Minutes from the meeting on August 6th and 7th showed that two members of the MPC voted in favour of a 0.25 per cent increase to 0.75 per cent. Both Ian McCafferty and Martin Weale felt it was time for an interest rate rise but were outvoted 7-2 allowing the Bank of England to keep interest rates at the historic low of 0.5 per cent.

It is the first time the MPC has been split on interest rates since July 2011 although it was not enough to manoeuvre from the 0.5 per cent, which rates have stood at since March 2009. Mr Weale and Mr McCafferty believed that falling unemployment could see an increase in salaries over the coming months, despite recent Office for National Statistics (ONS) figures showing just a 0.6 per cent rise in wages.

They argued that a 0.25 per cent rise would mean monetary policy would stay "extremely supportive" citing that prior to the 2008 financial crisis "normal" interest rates were, on average, around five per cent.

Peter Hemington, partner at BDO, told the BBC: "There are still big question marks for businesses on when the rise might come. Businesses cannot plan for growth on the basis of vague or conflicting statements – policymakers can do more to provide certainty for businesses, enabling them to make informed decisions for the future."

Following the announcement by the Bank of England earlier in the month, which confirmed interest rates would be remaining at 0.5 per cent, governor Mark Carney added a word of warning. Mr Carney explained that while rates currently remain at a historic low rate, this was expected to change by the end of the year.

Find up to date information on spread betting strategies at City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.