The minutes of the June Monetary Policy Committee meeting carried unusual interest thanks to Mark Carney’s Mansion House speech, in which he suggested Base Rate could rise earlier than the markets expected.
That led to a flurry of speculation (guilty!) that perhaps there was dissent growing within the Committee. Was there dispute over the outlook? Had someone actually voted for a rise?
In fact, the minutes reflect a remarkably muted discussion. They stress uncertainty about the path ahead; they’re full of possiblys and perhapses, and the words “uncertain” and “uncertainty” appear on almost every page.
The upshot, then, is that while some members felt the raise-or-hold question was “more balanced” there is no suggestion of dissent: no indication of “some members argued” or anything of that ilk.
So what caused the fuss? The key is this. The Bank’s forecasts show growth easing as the year goes on, in turn deferring the critical point. But as the minutes point out, that forecast could easily be wrong (and many critics have noted the Bank’s track record on this hasn’t been stellar) so in that context, the market expectation of no rise this year was a surprise.
Now, aside from the fact that the Bank of England seems surprised the markets believe it, that’s a fairly academic point compared to the more pressing “oh gosh, this is all getting out of hand” comments we’d half-expected.
Swap rates had jumped markedly after the Mansion House speech, with 2-year rates up around 0.2% and 5-year around 0.15%, hitting 2- and 3-year highs respectively. And we’d already seen a number of mortgage lenders increase their fixed rates in response: Platform (part of Co-Op); West Brom; Newcastle BS and Accord (part of Yorkshire BS group) increased rates just this week – and indeed the other Yorkshire brands (YBS, Chelsea, N&P) went last Friday.
None of the really big names have reacted though and these minutes should be fairly reassuring to the markets so with any luck, some of the pressure on mortgage rates should ease.
Nonetheless we’re still on an upward trajectory (Natwest and Nationwide had already increased rates before Governer Carney’s speech and the question was would they do so again) so any reprieve may well be fairly short-lived.