MPC hawks to remain in the minority for a while yet

This week, the Bank of England’s Monetary Policy Committee came close to voting to tighten monetary policy. At the same time, we saw claims that austerity is now over. It is remarkable therefore that markets still think the MPC will leave rates on hold until the second half of 2019. Admittedly, there are some good reasons why the MPC should be in no rush to raise rates. For a start, the fact that two more members have voted to raise rates does not necessarily mean that the tide is turning on the MPC – in the past it has been more likely for the MPC to shift en-masse to voting to hike than to accumulate over time. What’s more, the hawks’ concerns about inflation look somewhat overdone. And given heightened political uncertainty, it makes sense to hold off for a while. However, we still think that markets have gone too far in expecting rates to remain on hold until Q3 2019.