Bank of England policymakers split on rate hike: How the City reacted
Sterling spiked in the aftermath of the Bank of England's decision to keep interest rates steady today, as two members of the monetary policy committee (MPC) dissented in favour of hiking rates immediately.
The pound hit $1.422 just after midday, as the Committee hinted strongly that a rate hike would come in May.
Here's what the City had to say:
Ben Brettell, senior economist at Hargreaves Lansdown
"The Bank faces a delicate balancing act. Inflation seems to be falling back towards the target of two per cent, as the effect of the weaker pound starts to filter out of the calculation.
"But a pick-up in wage growth points to an erosion of slack in the labour market. This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present."
Ben Edwards, portfolio manager at BlackRock
“With today’s seven-two decision to keep the UK Bank Rate unchanged, the MPC’s focus on increasing wages and strong global growth all but nails on a hike at the May meeting.
"However, its brushing over some of the weaker hard data since the November meeting, and recent undershoot of its own inflation projections, suggest this may be the summer hike brought forward rather than a significant chance of additional hikes."
Dean Turner, UK economist at UBS Wealth Management
"The agreement around a Brexit transition deal was a welcome development for markets this week, as sterling jumped to its highest level versus the euro in five weeks.
"This agreement should lessen downside risks to the economy in the near term and, although inflation is trending down more rapidly than expected, this week's labour market data was a little more supportive. All in all, recent news leaves the door open for the Bank to hike rates when it meets in May."
Tej Parikh, senior economist at the Institute of Directors
"The future path for prices has been muddied by recent developments. A dip in inflation – with the impact of weaker sterling finally washing through – alongside softer economic growth and the potentially dampening impact of snowy weather on business activity in Q1, certainly made the case for holding rates this month.
“The Bank has also been focusing in on Brexit negotiations and tightness in labour market. On the former, the transition agreement has removed a major hurdle for economic confidence, and for the latter near record lows of unemployment have seen some pick-up in earnings.
"While both could increase inflation, the effect is likely to be limited, as businesses still face uncertainty around the precise nature of Brexit and SMEs currently do not have the capacity to raise wages significantly, given high costs and productivity constraints.
“All in all, it’s unclear how prices will evolve from here, so it’s best to wait and see.”
Michael Metcalfe, global head of macro strategy at State Street Global Markets
“Having laid the ground work with February’s inflation report, the dissenters at March’s meeting and accompanying statement will encourage interest rate markets to fully discount a tightening at May’s meeting.
"Given the fact that economic data has not been altogether positive in the past month, this will likely underline the Committee’s resolve to begin the slow process of normalising monetary policy in the face of still stubbornly high inflation, but very tepid growth.”
Peter Urwin, Director of the Centre for Employment Research
"It is the apparent agreement on a Brexit transition deal that has sealed a May rate rise of 25 basis points. A Brexit hit will arrive at some point – even if you do not believe this, it is a good bet this is what the majority of MPC members believe. The transition deal extends the period of uncertainty, but also pushes any significant economic hit into 2019 and beyond."
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