After a surprisingly large split in the vote at June’s Monetary Policy Committee meeting, two speeches this week provided further signs of a growing rift on the Committee. Indeed, the fact that Andy Haldane – Bank of England Chief Economist – appears to be not far away from voting to raise interest rates suggests that the chances of a rate hike well before the markets expect, and possibly even earlier than we expect, have grown.
That said, with arch-hawk Kristin Forbes leaving at the end of the month, and Governor Carney saying that “now is not yet the time to raise rates”, the doves may still be in a majority in the near term. What’s more, the recent fall-back in oil prices might help to assuage fears that high inflation could become ingrained and, if sustained, would mean that inflation could fall back to the 2% target sooner than previously expected. As a result, our base case is still that rates will rise around Q2 2018.
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