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| Bank of England warns Greek debt crisis could delay interest rate rise | Bank of England warns Greek debt crisis could delay interest rate rise |
| (about 2 hours later) | |
| Bank of England policymakers are concerned that the Greek debt crisis could delay Britain’s first interest rate rise in eight years, but warned that the prospect of a hike is increasing as the UK economy strengthens. | Bank of England policymakers are concerned that the Greek debt crisis could delay Britain’s first interest rate rise in eight years, but warned that the prospect of a hike is increasing as the UK economy strengthens. |
| With Brussels and Athens yet to begin formal talks on a third bailout deal, the monetary policy committee (MPC) said the eurozone could falter in the event of renewed infighting and drag down growth. | |
| Uncertainty about the prospects for wage growth also held back the MPC from bringing forward a rates rise, according to minutes of its meeting this month. Instead, the MPC voted unanimously to maintain the base rate at 0.5%. | |
| The minutes said: “For all MPC members, the policy decision this month was clear cut.” For a number of policymakers, however, it was the threat posed by rising wages on the Bank’s inflation target of 2% and not just the “very material factor” of Greece’s debt standoff that influenced their vote to keep rates on hold. “Absent that uncertainty, the decision between holding Bank rate at its current level versus a small increase was becoming more finely balanced,” the minutes said. | |
| At its previous meeting, in June, the Bank said that for two policymakers, the decision rates was already finely balanced. | At its previous meeting, in June, the Bank said that for two policymakers, the decision rates was already finely balanced. |
| The July minutes showed that for most members, keeping rates on hold would still have been appropriate even without the problems in Greece and the volatility in China’s financial markets. | The July minutes showed that for most members, keeping rates on hold would still have been appropriate even without the problems in Greece and the volatility in China’s financial markets. |
| Wages increased by 3.2% in May while inflation was virtually flat, providing workers with the highest average wage increase since the financial crisis. But the central bank expects inflation to increase over the coming months and voiced concerns that the momentum would be maintained over the coming months, which increases the prospect of a rate hike. | Wages increased by 3.2% in May while inflation was virtually flat, providing workers with the highest average wage increase since the financial crisis. But the central bank expects inflation to increase over the coming months and voiced concerns that the momentum would be maintained over the coming months, which increases the prospect of a rate hike. |
| The Bank of England governor, Mark Carney, argued last week that Britain would need to start raising interest rates to cool economic growth and prevent inflation heading above the 2% target. | The Bank of England governor, Mark Carney, argued last week that Britain would need to start raising interest rates to cool economic growth and prevent inflation heading above the 2% target. |
| He said a rise in rates could come before Christmas if the trend for higher wages put pressure on prices after a period of zero inflation. | He said a rise in rates could come before Christmas if the trend for higher wages put pressure on prices after a period of zero inflation. |
| The prospect of interest rates moving up sent the pound higher against the dollar, up half a cent to $1.5615, while against the euro it gained 0.8% to €1.43, clawing back losses earlier in the week. | |
| Chris Williamson, chief economist at Markit, the financial data provider, said Carney’s speech had already frightened growing numbers consumers into believing they faced the prospect of higher inflation and an increase in mortgage costs by the spring of next year at the latest. | Chris Williamson, chief economist at Markit, the financial data provider, said Carney’s speech had already frightened growing numbers consumers into believing they faced the prospect of higher inflation and an increase in mortgage costs by the spring of next year at the latest. |
| Citing Markit’s latest household finance index, which is based on a survey of 15,000 households, he said: “Households have already started to adjust to the reality of rate hikes drawing nearer, mentally at least. The survey showed one in three households expect the Bank to starting hiking in the next six months picked up to 34%, up from one in four in June.” | Citing Markit’s latest household finance index, which is based on a survey of 15,000 households, he said: “Households have already started to adjust to the reality of rate hikes drawing nearer, mentally at least. The survey showed one in three households expect the Bank to starting hiking in the next six months picked up to 34%, up from one in four in June.” |
| The Bank’s chief economist, Andy Haldane, has voiced concern that a rate rise risks undermining the UK’s recovery when households also face a squeeze from higher prices. | |
| But he appears to be a lone voice after another well-known dove David Miles said in a speech that he believed rates would need to rise in the near future, arguing it would be a “bad mistake”. | But he appears to be a lone voice after another well-known dove David Miles said in a speech that he believed rates would need to rise in the near future, arguing it would be a “bad mistake”. |