LONDON (Reuters) – Two Bank of England policymakers again voted to raise interest rates this month, leaving the central bank divided for a second successive month, but the rest of their colleagues remained firmly against tighter policy.
Minutes of the BoE Monetary Policy Committee’s Sept 3-4 meeting released on Wednesday showed that external members Martin Weale and Ian McCafferty voted to raise interest rates to 0.75 per cent from their record-low 0.5 per cent.
But the other seven members of the MPC saw no need to rush into the BoE’s first rate rise since 2007, citing increased signs of weakness in the eurozone as well as weaker domestic housing activity, manufacturing and exports.
The MPC said that it was concerned that temporary weakness in the eurozone could turn into a prolonged period, and revive worries about the solvency of some eurozone governments.
“This could damage confidence and disrupt financial markets, and, as a result, the downside risks to UK growth in the medium term had probably increased,” the MPC said.
The MPC made little mention of a referendum on Scottish independence due to take place on Sept 18, beyond noting that it had triggered some volatility in foreign exchange markets.
Instead, it was more struck by a “remarkable” lack of volatility in markets – particularly for crude oil – against a backdrop of increased tension in Ukraine and the Middle East.
The BoE’s staff had revised up their forecast for third-quarter growth to 0.9 per cent – well above Britain’s long-run average – but the MPC said they saw some signs of a slowdown in the fourth quarter, though they noted they had been wrong on this before.
The MPC also took increased interest in the growth of unit labour costs – how much workers produce for a given amount of salary – rather than official wage growth figures.
Average weekly earnings have been very weak, and the MPC said this could be partly due to the long-term unemployed re-entering the labour market in low-skilled work.