Although minutes of the latest MPC meeting released this week show that members voted unanimously to leave Bank rate unchanged, this was largely due to uncertainty caused by the Greek crisis. With that crisis now resolved, albeit perhaps temporarily, the way is clearer for a rate rise. "The barriers to hiking rates have steadily come down," says Chris Williamson at Markit. "Policymakers may become more hawkish at the next meeting." Some economists expect three of the nine MPC members to vote for a rate rise next month, and a majority to do so in November. Bank Governor Mark Carney hinted at this last week when he said a rise is possible "around the turn of this year".
The biggest reason to raise rates is that wage inflation is accelerating. Earnings grew by 3.2 per cent in the year to the three months ending in May, the fastest increase for five years and a bigger one than the Bank had expected. Also, the Bank expects the economy to continue to grow healthily - with real GDP rising 0.7 per cent in the second and third quarters - which, it thinks, will add to capacity constraints and inflation. What's more, it estimates that most of the shortfall of inflation from its target is due to temporary factors such as lower prices for oil, food and imported goods, and these will fade away later this year.
Nevertheless, there are still reasons not to raise rates. One is that manufacturers are struggling: official figures show that output has fallen in the past two months. Also, latest figures show that unemployment has risen, which might indicate that productivity is rising, suggesting that wage growth is being partly offset by efficiency gains.
What's more, falling import prices might not be as temporary as the Bank thinks. Sterling's trade-weighted index has risen 2 per cent since the MPC met, and the S&P/GSCI index of commodity prices has dropped 10 per cent so far this month.
Not everyone, therefore, expects the Bank to move soon. The chances of a rise this year, says Richard de Meo at Foenix Partners, "remain slim".
