Meet the two MPC rebels who voted for a key interest rate cut by the Bank of England today

The Bank of England once again kept its base rate unchanged after divisions emerged among interest rate setters over the impact of recent inflationary pressures.

Members of the Monetary Policy Committee voted to keep the base rate at its current level of 5.25 percent by a margin of seven to two, overruling Swati Dhingra and Dave Ramsden as they urged the bank to cut rates by 25 basis points to 5 percent.

Minutes from the MPC’s most recent meeting show Dhingra and Ramsden, who have each been more dovish than their peers this year, are less concerned than their counterparts about the services inflation and wage growth data that pushed back expectations for a market rate cut earlier this week .

Data from the Office for National Statistics on Wednesday showed the headline inflation rate had finally returned to the bank’s target of 2 percent, but higher-than-expected inflation in the services sector and continued strength in the labor market overshadowed this performance.

Who are the rebels?

External member and mega-pigeon Dhingra, who is also an associate professor of economics at the London School of Economics, has voted for a base rate lower than the consensus decision 12 times since joining the MPC in September 2022.

Dhingra voted for a reduction to 5 percent at each of the last four meetings since February 1.

Ramsden, the BoE’s deputy governor for markets and banks, has now voted in favor of a cut at two meetings in a row.

Since joining on September 22, his MPC record stands at 16 votes for an increase, 27 votes for maintenance and four votes for reduction.

No other MPC member has voted for a cut since the base rate peaked at its current level.

What is the split?

The BoE said the MPC has expressed a “range of views” on what evidence is needed to justify a rate cut “and the extent to which additional information led them to materially update their assessment of inflation persistence.”

Members who voted to maintain interest rates believe that the CPI’s return to the 2 percent target “is not necessarily indicative of the required sustainable return to target.”

The BoE said: ‘Continued high and upward news on services inflation supported the view that second-round effects would maintain continued upward pressure on underlying inflation.

“Wage growth continued to exceed model-based estimates. Domestic demand indicators were stronger than expected, and risks to the outlook for activity were tilted to the upside.

“For these members, more evidence of declining inflation persistence was needed before the degree of monetary policy restrictiveness could be reduced.”

But Dhingra and Ramsden believe that the upward news on services price inflation “does not significantly change the disinflationary trajectory that the economy (is) on”, while the increase in the national living wage in April due to wage growth should be considered abnormal being seen.

“Such factors should not push up inflation in the medium term,” the report said.

‘For these members, the bank rate now had to become less restrictive to allow for a smooth and gradual transition in the policy stance and to take into account transmission delays.

“Given the subdued demand outlook, risks to inflation remaining sustainably on target over the medium term were on the downside.”

When will the BoE cut the base rate?

Short-term government bond yields and the British pound fell in the wake of the decision, suggesting markets are less confident that the BoE will leave the benchmark rate unchanged at the August MPC meeting.

At current prices, the chance of an interest rate cut in August has increased from 40 to 60 percent today, according to ING analysts.

Traders are more confident the bank will make cuts at the September 19 and November 7 meetings.

The BoE said it is “prepared to adjust monetary policy, as justified by economic data, to sustainably return inflation to the 2 percent target,” and therefore “the indications of continued inflationary pressures and resilience in the economy to continue to monitor closely as a whole’. .

“As part of the August forecast round, Committee members would consider all available information and how this affected the assessment that risks of inflation persistence were declining,” it added.

Julian Howard, chief multi-asset strategist at investment group GAM, said: ‘The path looks increasingly clear for some easing at the August meeting.’

‘Inflation has fallen to the target level of 2 percent, in contrast to the US and – to some extent – ​​Europe.

Energy bills in Britain in particular are easing and although the unique regime for capping energy bills has seen sharper price movements, actual prices achieved for consumers are finally normalizing.

‘However, some risks remain. Britain is in the midst of an election campaign and a potential landslide in the Labor sector could destabilize the markets, and especially the currency.

Sir Keir Starmer has come under pressure on tax and spending in recent days.

While the headline inflation rate may have fallen encouragingly to 2 percent, the Bank will be keen to avoid a policy mistake where it cuts rates but then has to hold back or, worse, reverse easing altogether due to forces beyond its control. power. check.’