Trade gap shock as BoE keeps rates powder dry

These developments may “increase the likelihood that headline inflation rates would remain subdued”, according to the minutes.

“However, MPC members are likely to want to see more evidence on trends in the labour market, inflation and growth, as well as the outcome of the US Federal Reserve’s decision on interest rates later this month before considering any change in policy”.

Britain’s economy has grown strongly for more than two years but inflation remains below zero and the BoE has kept rates at the level to which they were cut during the worst of the financial crisis almost seven years ago.

The Bank of England ended another year leaving interest rates at record lows yesterday, as the City was jolted by poor United Kingdom trade figures. The vote split was also no surprise; Ian McCafferty voted to raise rates by 0.25 percentage points, while the other eight rate setters preferred to stay on hold. Measures announced in the Government’s Autumn Statement mean a slightly lower pace of deficit reduction in 2016 than was previously planned, although the fiscal consolidation will continue to weigh on growth over the forecast period.

Returning inflation to target “depends on an increase in domestic cost growth sufficient to balance the drag on prices from very subdued global inflation and past increases in the value of sterling”, the minutes said.

All 52 economists in a Reuters poll had predicted the Bank would keep Bank Rate at 0.5 percent and an overwhelming majority had forecast another 8-1 vote.

The minutes, which are released alongside the result of the vote, highlighted a discussion on what might account for “the apparent flattening off in pay growth”.

Real wage growth has also returned, and most members of the MPC (except BoE chief economist Andy Haldane) are clear in suggesting that the next move from the Bank will be a rate hike, which will begin a steady tightening cycle, raising interest rates slowly.

Minutes of December’s policy meeting show officials were concerned by an apparent slowdown in wage growth, as well as a further dip in oil prices. This guidance is an expectation, not a promise.