The Bank of England (BoE) has once again voted to keep interest rates at 0.25%, although the support of its nine-strong Monetary Policy Committee (MPC) for the decision is no longer unanimous, with one member voting to increase rates by 25 basis points (bps).
According to the Financial Times, Kristin Forbes voted to raise rates by a quarter of a percentage point to 0.5%, despite the rest of the committee judging that consumer spending and wage growth remain too sluggish to change rates.
However, with Forbes set to leave the MPC at the end of June, the committee's dovish stance on interest rates is likely to stay on track despite her hawkish views.
More dovish members noted that wage growth had been "softer than expected" despite a drop in unemployment, while retail sales had "weakened notably".
However, Forbes said inflation was rising fast enough and was likely to remain above the BoE's 2% target for at least three years, while also noting that growth is likely to be supported by net exports in the future.
In line with this, the minutes of the MPC meeting showed some members believed interest rate rises should be put in place sooner rather than later, reversing the central bank's long-held "lower for longer" approach.
"Some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted," said the MPC, led by BoE governor Mark Carney (pictured).
The committee also noted if growth continues to slow more rapidly than as forecast in February then additional policy support could be warranted, while monetary policy may need to be tightened sooner and to a greater degree than currently priced in by markets if growth is maintained.
The MPC also remains committed to its £435bn quantitative easing programme, which sees it pump money into the UK economy by buying government bonds.
Following the news, the pound rose by 0.5% to reach $1.235 against the dollar, while yields on the 10-year gilt rose 6.5bps to 1.276%.
Traders are reportedly betting on the first 0.25% rate rise in early 2019.
Jonathan Chitty, investment analyst at Brown Shipley, said: "Though unsurprising, the Bank of England's decision to hold rates comes as unemployment and spending remain strong and inflation creeps higher - conditions under which central bankers would usually consider hiking rates.
"However, perhaps the most interesting detail of today's decision is that support for keeping rates at historic lows is no longer unanimous, with Kristin Forbes voting for a 0.25% increase.
"This is the first dissenting vote in favour of rising rates for some time, and when considered alongside the more ‘hawkish' comments in the BoE's release it should provide some support for the pound going forward."
Ian Kernohan, economist at Royal London Asset Management, said: "As expected, the Bank of England has left policy unchanged. GDP growth in the first quarter looks to have been close to their forecast, with some signs of a slowdown in household spending.
"A reduction in the equilibrium unemployment rate, supported by a softening in wage pressures in the latest Labour Market Report, suggests interest rates will remain on hold for now."
No signs of blinking
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The Bank of England is showing no signs of blinking in the course it has charted for monetary policy. Inflation may be starting to rise, but interest rates are staying put for the foreseeable future, which is going to cause further pain for cash savers.
"Households face a currency crunch this year, as weaker sterling feeds through into consumer prices, pushing up the cost of living, while pay growth still looks anaemic.
"The central bank is now watching three key measures to determine what to do with interest rates - consumer prices, consumer spending and wage increases. These are the indicators to watch for an inside track on the Bank's next move, however that move may be some time coming, and as recent history tells us, it may not be in the direction everyone expects.
"The dissenting vote by Kristin Forbes will have come as a surprise to some, although she is a well-known hawk on the committee, who will be leaving this summer."
Chris Leyland, deputy chief investment officer at True Potential, said: "It is exactly eight years since the Bank of England reduced interest rates to under 1% and for the majority of the period since then, inflation has remained above 1%. The effects of that on cash savers have been devastating.
"Someone with £10,000 in a cash deposit account in March 2009 receiving UK base rate interest would have £10,400 today. But in real terms, factoring in inflation over that time, the value of their £10,000 has dropped by £1,240."
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