MNI: BOE MPC Votes For 50BPS Hike, Splits Three Ways

The Bank of England delivered the widely anticipated 50 basis point rate hike at its December meeting although the Monetary Policy Committee split three ways over the move, with all the Bank insiders backing the increase but externals Swati Dhingra and Silvana Tenreyro voting for unchanged rates and Catherine Mann going for a 75bps hike.

The guidance given by the MPC was broadly unchanged from November. The majority said that if the economy evolved as expected "further increases in Bank Rate might be required" and everyone on the Committee backed the view that they would respond "forcefully" if inflation proved to be more persistent.

Mann said that while inflation may have peaked there were signs that "price and wage pressures would stay stronger for longer" than predicted in the Bank's November Monetary Policy Report (MPR) and she argued that tougher action now would lower reduce the risk of having to keep hiking well into 2023.

Dhingra and Tenreyro instead highlighted the evidence that the real economy was weak and the full effects of past rate hikes were yet to feed through.

BUDGET BOOST

The December meeting was the first time that the MPC could debate the detail of the changes in fiscal policy in the government's Autumn Statement, which delivered a mix of fiscal easing near term and tightening through spending cuts further out.

Bank staff estimated that the fiscal policy changes would increase the level of GDP by 0.4% in one year's time, leave it little changed in two years' time and lower it by 0.5% in three years' time compared to the forecasts in the Bank's November Monetary Policy  Report.

Bank staff raised their quarter-on-quarter Q4 GDP forecast by 0.2 percentage point to -0.1%.

The MPC cited evidence that the labour market may have turned, with signs that is now easing. Vacancies declined in recent months and the Bank's agents found firms' recruitment difficulties had eased.