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Bank Of England Split On Record Low Rate

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Policymakers of the Bank of England decided to maintain its record low interest rate, in a split vote, as one policymaker preferred a quarter point hike.

The Monetary Policy Committee of the BoE, governed by Mark Carney, on Thursday, voted 8-1 to hold the key bank rate at 0.25 percent. Kristin Forbes voted to lift the bank rate by 25 basis points.

Other eight members of the committee thought that the current stance of monetary policy remained appropriate to balance the demands of the Committee's remit.

Forbes said the monetary policy trade-off had evolved to justify an immediate rate increase. Inflation was rising quickly and was likely to remain above target for at least three years, she noted.

Policymakers said the monetary policy can respond, in either direction, to changes to the economic outlook as they unfold to ensure a sustainable return of inflation to the 2 percent target.

"With inflation rising sharply, and only mixed evidence on slowing activity
domestically, some members noted that it would take relatively little further upside news on the prospects for activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," the minutes said.

She might be joined by a couple of others soon given comments within the meeting minutes, James Knightley, an ING economist, said. Despite this hawkish tone, financial markets have their doubts that enough MPC members will back the idea of tighter monetary policy soon, he added.

IHS Markit Economist Howard Archer, said despite Forbes vote for a rate hike, he maintained the view that the BoE is highly likely to sit tight on interest rates through 2017 and 2018 - and very possibly beyond.

However, given major uncertainties over the UK economic outlook nothing can be ruled out on the interest rate front, Archer added.

The Committee voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at GBP 435 billion.

Deputy Governor Charlotte Hogg, who offered her resignation early this week, voted at the meeting.

The BoE decision came after the U.S. Federal Reserve on Wednesday lifted its target range by 25 basis point to 0.75 percent to 1 percent and signaled more hikes to come.

by RTT Staff Writer

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