The Bank of England (BoE) has voted 7 to 2 in favor of keeping interest rates unchanged, citing a decline in inflation, according to the latest minutes of the Monetary Policy Committee (MPC) released by the British central bank. The central bankers noted that there isn’t enough inflationary evidence to justify an immediate rate increase.
MPC members Martin Weale and Ian McCafferty were the two sole voters to support increasing the central bank’s all-time low interest of 0.5 percent to 0.75 percent. Most financial analysts and economists expected an overwhelming vote to maintain interest rates amid the uncertainty over the result of Scotland’s independence referendum Thursday.
Interest rates have remained unchanged since Mar. 2009. We reported last week that the BoE hinted that it would begin to raise rates beginning in the spring, noting that the bank is meeting its employment level targets and inflation rates. Of course, the particular timing of the rate hike would depend upon labor conditions and wage increases.
“There seems to be very little in the short term that would necessitate an interest rate rise. It would be no surprise if a rate rise moves back to later in 2015,” said Peter Hemington, a partner at BDO LLP, in an interview with BBC News. “But there is an aura of uncertainty around interest rates at the moment. The views of economists as to when a rate rise will occur vary enormously and this is reflected in [the MPC’s] 7-2 split.”
The minutes further revealed that the BoE saw the exchange rate weaken and volatility had heightened because the market has been hesitant due to Scotland’s push to secede from Great Britain, though the BoE made very little mention of the important vote. However, Weale and McCafferty believed there was enough momentum in the fall of unemployment and potential wage growth to justify a hike.
Scotland’s Independence Referendum
The world will be watching Thursday when Scots vote to either maintain its union with Britain or secede. According to political experts, however, there would only be modest changes that would impact both sides.
For instance, if the referendum passes then Scotland will keep 90 percent of its oil wealth and be liable for eight percent, or $2.1 trillion, of the national debt based on its share of the United Kingdom population. The British government has argued that Scotland would have a higher share of debt because its larger per capita public spending.
Scotland will still keep the pound sterling, though the BoE says it’s difficult considering that “a currency union is incompatible with sovereignty.” Also, Scotland will still keep the queen and her Balmoral estate, a royal family tradition for summer vacations.
What’s concerning many Scots is whether or not it would be accepted into the United Nations, the European Union or NATO. Officials in all three organizations say re-admission is not guaranteed should Scotland become an independent state.
Nevertheless, if Scotland votes Yes then independence day for the country will be on Mar. 24, 2016.
