BOE may split on UK rate hike

Bloomberg

Not everyone at the Bank of England will be on board with raising interest rates. While November 2 may see the UK’s first rate increase in more than a decade, economists surveyed by Bloomberg say three out of nine officials on the Monetary Policy Committee will vote against the move. That’s based on the median estimate from 24 responses.
Any divide within the BOE panel reflects the conflicting
signals from the economy, which is seeing both a currency-driven inflation surge and weaker expansion.
While for some officials, the economy may still be too fragile to endure a rate increase, Governor Mark Carney and others
see Brexit reducing potential output, making the UK more vulnerable to overheating.
Policy makers Dave Ramsden and Jon Cunliffe may be among those to dissent. Ramsden said this month he doesn’t yet
see domestic inflationary pressures building, and Cunliffe said it’s an “open question” when the BOE should lift its benchmark rate from a record-low 0.25
percent. Silvana Tenreyro, described as “neutral” on policy by Bloomberg Economics, has
also hinted that she’ll proceed with caution.
The overriding thinking on the committee, however, seems to be that above-target inflation and a shock to supply from leaving the European Union means a rate hike is warranted.
In the buildup to the decision, some recent data may have emboldened the more hawkish
policy makers.
The economy expanded by 0.4 percent in the third quarter, more than economists expected, and inflation hit 3 percent last month, a full percentage point above the BOE’s target.
The central bank will update its economic forecasts alongside the policy decision.
Compared with August, economists see a chance of an increase in the bank’s inflation estimate for this year.
Even with a division on the MPC, economists forecast that the BOE will keep alive the prospect that further rate increases are on the cards.
While another move may not come soon, more than half of those surveyed expect Carney
to indicate that markets are
still underpricing the odds of
future tightening. Markets see an 88 percent chance of a rate increase next week, with another priced in by the second half of next year.