17th Sep 2014 11:35
LONDON (Alliance News) - Policymakers of the Bank of England split on the rate decision in September as two members repeated their call for a quarter- point hike given the rapid absorption of slack with economic growth.
The British unemployment rate continued to fall in July, reaching the lowest since late 2008, and jobless claims declined more than expected in August.
For the second straight session, Monetary Policy Committee members Ian McCafferty and Martin Weale sought to raise the key rate by 25 basis points, while all other seven members voted to keep the rate at 0.50%, the minutes of the meeting showed Wednesday. All nine members voted to maintain the size of quantitative easing at GBP 375 billion.
McCafferty and Weale assessed that economic circumstances were sufficient to justify an immediate rise in Bank Rate.
Even after a rise of 25 basis points in the key interest rate, monetary policy would remain extremely supportive, and an early rise would facilitate the Committee's aspiration that rises in Bank Rate should only be gradual, the two members said.
But for most members, there remained insufficient evidence of prospective inflationary pressures to justify an immediate increase in Bank Rate. The Committee considered the level of Bank Rate currently appropriate to meet the inflation target.
Moreover, increases in the rate well ahead of any prospective pick up in wage and income growth risked increasing the vulnerability of highly indebted households.
In addition to MPC's fairly dovish tone, the continued weakness of average earnings growth has bolstered the case for keeping interest rates on hold over the coming months, Samuel Tombs, a senior UK economist at Capital Economics, said. The labor market data also strengthened the case for a further period of inaction.
An interest rate hike would highly likely be delayed if the Scots vote for independence on Thursday and there are signs that the economy is being adversely affected in the uncertain aftermath, said IHS Global Insight's Chief UK Economist Howard Archer.
The Office for National Statistics reported that the ILO jobless rate fell to 6.2% in May to July, down from 6.6% in February to April. This was the lowest rate since August 2008. The rate was seen at 6.3%. There were 2.02 million unemployed people, down 146,000 from February to April.
The claimant count rate fell to 2.9% in August from 3% in July. The number of people claiming jobseekers' allowances declined by 37,200 from July to 966,500 in August. It was forecast to fall by 30,000.
Pay including bonuses for employees was 0.6% higher during May to July from the previous year. Excluding bonus, pay grew 0.7%. Pay growth is well below consumer price inflation of 1.5% in August.
Survey data released by Markit Economics showed today that British households' pessimism regarding their financial situation continued to ebb in September as pay growth remained strong.
The Household Finance Index, which measures overall perceptions of financial well being and aims to track consumer behavior, rose to 42.6 from August's revised 42.3. The fastest increase in income from employment since July 2013, largely supported household finances in September. Pessimism regarding job security was the lowest since the survey began in early-2009.
Copyright RTT News/dpa-AFX