Bank of England leaves bank rate at 0.5 pct, rise expected

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Bank of England moves closer to August interest rate rise

The Bank's ratesetters voted 6 to 3 to hold rates rather than the expected 7 to 2 result, as the Bank's chief economist Andy Haldane joined those calling for an immediate rise.

Ben Brettell, senior economist at Hargreaves Lansdown, said: 'Today's decision was always expected to be one of no change, with even those who think a rate rise is coming focusing on the Bank's August policy meeting as the most likely candidate for an upward move.

Minutes of the MPC meeting showed Haldane (pictured below) joined Michael Saunders and Ian McCafferty, the committee's two hawks, in believing the United Kingdom economy could cope with a slightly higher cost of borrowing. Only time will tell if this takes place or not, but members of the Bank of England's Monetary Policy Committee appear to have become more vocal about the prospects of a more hawkish monetary policy.

The Bank left its benchmark rate at 0.5% as was widely expected by economists polled by Reuters. Sterling rallied against the dollar on the news, heading for its biggest daily gain in two months. However the news that Haldane has turned "hawkish" will increase expectations that rates will rise later this year, possibly as early as August.

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No economists polled by Reuters expect the BoE to raise rates when it announces its June policy decision at 1100 GMT, and markets are split over whether the BoE's next rate rise - which would be just its second since the financial crisis - will come at its next meeting in August, or only later in 2018.

BoE members expect inflation to pick up slightly more than forecast in the near term.

With unemployment at its lowest since 1975, the BoE says the economy is near full capacity, and interest rates will likely rise in a gradual and limited way over the next two to three years to curb inflation.

Last year, bank rates were increased to 0.5%, representing the first uplift since 2007.

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But the majority of the MPC continued to want to wait and see how the "data evolved from here" before pushing the button on a rate rise. Haldane has a reputation for wide-ranging interests and thinking that does not always represent the mainstream at the BoE, so it remains to be seen if other BoE officials follow his lead on monetary policy.

Last week, the U.S. Federal Reserve raised interest rates and the European Central bank set an end-date for asset purchases.

XTB market analyst David Cheetham said today's meeting had "very little chance" of changing interest rates but "there's been several strong hints towards an August hike".

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