Bank of England minutes show unanimous vote but hawks flapping

Minutes released from the Bank of England's latest interest rate setting meeting show a unanimous vote in favour of the decision to keep rates steady.

But the Monetary Policy Committee's members all agreed that the "slack" in the economy was shrinking and a number of members saw inflation risks as rising.

Nevertheless the MPC decision not to raise rates at 0.5% last month was "clear cut" for all members, according to the minutes.

However, a number believed the "balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside" at the current rate, with only the uncertainty caused by recent developments in Greece leading them to vote in favour of no change.

Without the Greek uncertainty, as the MPC vote came on Wednesday 8 July before the Greek crisis had eased, the decision to vote for a small increase was, for some, "becoming more finely balanced".

Governor Mark Carney has in recent days been signalling that a decision to start hiking rates is nearing, with the turn of the year specifically being mentioned.

Economists perceived increased hawkishness about raising rates, however.

"From now on, interest rate decisions at MPC meetings are going to become progressively harder to call," said Howard Archer at IHS Global Insight. "While there was a 9-0 vote in favour of unchanged policy in July, this will highly likely have been the last time that unanimity prevailed for keeping interest rates at 0.50%.

Markit's Chris Williamson said the minutes "reveal a mood of hawkishness developing steadily among policymakers".

"Although most members would still have seen holding rates as the most appropriate stance, the minutes suggest that two members (most likely Ian McCafferty and Martin Weale) are clearly inching towards voting for borrowing costs to start rising," he said.

Sam Tombs of Capital Economics suggested that the recent easing of the Greek crisis may be enough to shift some members to vote to raise rates next month.

"What’s more, the Committee appears to be increasingly concerned that 'the balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate' – a long-winded way of saying that it has become concerned that wage pressures are now too strong."

Nonetheless, Tombs pointed out that CPI inflation looks set to hover around zero until the end of 2015, with productivity now reviving and the key unit wage costs still not rising at rates consistent with inflation hitting the 2% target over the medium term.

"So with inflation pressures still extremely weak and a major fiscal squeeze set to hit the economy, we continue to think that a majority to raise rates will not be mustered until the second quarter of 2016."