All nine members of the Bank of England's Monetary Policy Committee voted for this month's quarter percentage-point interest rate rise, but analysts say the next hike is now unlikely until August. There was little in the minutes of the June 9-10 meeting published on Wednesday to suggest the MPC was about to lift interest rates again next month, though June's decision to hike for the second straight month seemed clear-cut for most members. "The thing that screams out is that the MPC is not aiming for a July hike in interest rates," said Philip Shaw, chief economist at Investec. "August is likely." Government bonds and interest rate futures promptly shot up on relief that the BoE had not signalled in the minutes a more aggressive pace of rate rises in the months ahead.
Futures markets, though, are still pricing in at least another 75 basis points of monetary tightening by the end of the year, adding to the four quarter-point increases since November. The June hike appeared to be a kind of catch-up for most of the MPC who had thought that forecasts in May's Inflation Report could have warranted a half-point rate rise that month, instead of the quarter-point hike they opted for. One unnamed member, however, thought that the decision to raise rates again a fortnight ago was finely balanced. "We would take a guess (this was)... Marian Bell, who voted against the November hike," said Jonathan Loynes, chief UK economist at Capital Economics. "Or Charlie Bean, who is probably the most strongly opposed to the idea of deliberately attempting to address the strength of the housing market with monetary policy."
DEBT AND HOUSING STILL A WORRY
Some MPC members are clearly concerned that household debt levels and house prices are still rising too fast and increasing the risks to economic stability further out. "A further increase in interest rates now might encourage a more prudent approach towards incurring higher levels of prospective debt servicing, so helping to contain the vulnerability of demand to subsequent shocks," the minutes said. BoE Governor Mervyn King last week cautioned consumers against taking on too much debt to buy new homes as he said the chances of house prices falling had increased. The MPC noted in the minutes that house price inflation had picked further and was likely to be even stronger in the second quarter of 2004 than it had expected just last month. While there were some early signs of easing, these "were very tentative, and it was clear that any sign of slowdown in house price inflation would be later and from a higher rate than the Committee had previously envisaged". Other news since May had also on balance suggested stronger external demand and inflation. The euro zone economy was looking stronger while recovery in the United States and Asia was more firmly established. Labour market conditions were tightening, with both employment and earnings picking up. Oil prices, which had risen sharply so far in 2004, were expected to have only a modest impact on the British economy. "The minutes indicate that the next hike will be in August at the earliest, with the MPC waiting to determine whether the hikes begin to take effect, especially with regard to the housing market," said Mitul Kotecha, strategist at Calyon.///