On July 10 all nine members of the Monetary Policy Committee voted to keep rates at 0.5%, where they have stood for five years, as while “employment had continued to increase robustly... wage growth had been surprisingly weak”.
Wage growth excluding bonuses slowed to a record low 0.7% in the three months to May. This was accounted for by the nature of recent job creation, which is in the form of low skilled and low paid jobs.
Changes to the benefits system and an increase in people working past retirement age were also said to have increased the supply of labour, keeping its cost down.
Some within the committee felt the economy could cope with a rate rise, as the minutes said: “The risk of a small rise in Bank rate derailing the expansion and leaving inflation below the target in the medium term was receding.”
Moving forward, the committee anticipate a “modest slowing in output growth” in the second half of the year, as the notes said: “There were early signs that global growth was weakening, and an unexpected increase in interest rates when real wages were not yet rising could... destabilise the recovery.”
Bank of England Governor Mark Carney last week said the timing of the first rate rise would be “driven by data”.
The minutes concluded: “The committee agreed that no increase was warranted at this meeting, although for some members the decision had become more balanced in the past few months than earlier in the year.”
