Here it comes . . .

It’d be wrong to say there’s disunity at the Bank of England’s Monetary Policy Committee, but it looks like the unanimity might be getting a little strained.

The minutes of the Committee’s May meeting reveal a much greater debate about how soon Base Rate might be increased: “ . . .Committee members placed different weights on these considerations. . . “, and, “. . . for some members the monetary policy decision was becoming more balanced . . .”, and most excitingly, “. . . the more gradual the intended rise in Bank Rate, the earlier it might be necessary. . . “

Of course that was bound to happen as the key moment approached and is inevitably exacerbated by shifting forward guidance about rates away from nice, clear trigger points (unemployment rate) to muddy, barely-defined ones (economic slack).

However the fact that it’s coming up now quite possibly suggests the key moment is closer than we might have supposed. So now there are two key – linked – questions: 1) how many committee members are finding the decision “more balanced”? That’s something we can’t know until someone decides to break ranks, which brings us to 2) how long will it take for debate to turn into dissent?

It seems improbable that we’ll get a majority voting for rate rise ex nihilo: more likely we’ll get an outrider for a couple of months, then maybe a couple more join in, and an outright majority a month or so after that. So in theory there could be anything up to 6 months notice before Base Rate actually increases. Further, the current emphasis on caution suggests it’d only be a small move with no more increases for a while after (though of course that outlook could change radically over time).

However there’s such expectation building up now that I think we’ll see consumers hit well before that. I’d anticipate a significant reaction – almost certainly an overreaction - hit new fixed rates as soon as the first member breaks ranks, and once it spreads to three or four members we’ll likely see some (ahem) overenthusiastic Standard Variable Rate moves as well.

Deep breath everyone...

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