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MPC meeting confirms base rate held in November due to Eurozone uncertainty

November 20th, 2014

The expectation of a base rate rise has gradually become a matter of when, rather than if, in recent times. On the first Thursday of every month the Monetary Policy Committee meet to discuss the matter and it is with baited breath that anyone involved in the industry and borrowers alike scan news bulletins for confirmation of their decision.

Another month has passed without a rise, leading many to debate what has stayed the MPC’s hand once more. A senior economist for Axa Investment Managers, David Page, chose to state that the company previously predicted a rise to be implemented by May 2015 at the latest, but had now increased this to August. Page said: “We think the MPC will be insufficiently determined to tighten policy during the uncertainty that looks likely to surround next May’s election.

“We think that by August, the end of near-term inflation weakness will be within sight and medium-term inflation pressures (including from weaker productivity growth) will see inflation projected above 2 per cent.”

According to notes released from the latest meeting, it appears that it is not just the rate of inflation that concerns the MPC. Of the votes cast on the decision to raise the base rate, seven out of nine members voted against the move. The minutes confirm that the MPC see inflation and the UK’s ties with Europe to be the integral factors in the final decision.

These confirmed that, “Although the direct impact on the United Kingdom of the current phase of disappointing activity might be relatively modest a prolonged period of poor growth and very low inflation could have a larger impact if it led once again to uncertainty about the sustainability of euro-area public and external debt,”

Ian McCafferty and Martin Weale are the two members that chose to vote for a raise for the second month running, but it appears they could not convince the other members to look past the poor performance for growth in the Eurozone and the potential risk of deflation.

Kerry Craig, a global market strategist for JPMorgan Asset Management concurred with the timescales predicted by David Page. He noted that the Bank of England governor, Mark Carney, had given a speech in June that sparked expectations of a rise of rates before the end of 2014, but he cited, “weaker global growth outlook and sharp falls in global inflationary pressures have pushed [back] the expected date of the first rate rise by nearly 12 months.”

An economist for Capital Economics, Samuel Tombs, echoed the belief that any movement in 2014 is now unlikely. He referred to the MPC meeting when he was quoted earlier this week to claim, “various passages of the minutes suggest that the committee is placing more emphasis on the current weakness of CPI inflation and pipeline price pressures, than on theoretical estimates of the amount of spare capacity.

“Given that CPI inflation looks set to continue to ease over the rest of this year, the chances of a 2014 rate hike now look slim.”

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

Media Contact: Raman Kaur, Public Relations Manager

Tel: 01489 555 080

Email: media@contractormortgagesuk.com

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