Bank of England MPC members expected to call for interest rate rise

Bank Of England Building

Economists are expecting the first official pressure for a rise in UK interest rates to emerge this week, when the Bank of England's monetary policy committee (MPC) meets.

The consensus is that rates will not rise until early 2015, but polling by Reuters last week found that economists expect a first voice or two on the nine-strong MPC to call for a rate rise this week.

"We expect the jobless rate will continue to fall rapidly, with the Bank hiking earlier and further than markets project," said Michael Saunders, the chief UK economist at Citi.

The MPC's voting pattern will only become public when minutes are released two weeks after the meeting. The US Federal Reserve has just registered its first dissenter, with the hawkish Charles Plosser saying the commitment to keep rates near zero for a considerable time did not reflect the gains made by the economy.

The UK economy is expanding at an annual rate in excess of 3% and unemployment is declining, but the absence of wage pressure means there is no immediate reason to act.

The MPC meeting comes as separate surveys illustrate how, even with the economy performing strongly again, not all elements are functioning evenly.

Bank lending to the private sector still lags far behind the G7 average, despite government efforts to boost the availability of credit, according to a new study by the accountants UHY Hacker Young.

Private sector credit volumes were down by 2.2% in real terms in the last year, while average lending across the G7 economies increased by 0.1% in real terms.

Laurence Sacker, a partner at Hacker Young, said: "Nearly six years on from the start of the banking crisis, we are still seeing virtually no increase in bank lending in the UK … Demand for loans is increasing, but the banks are generally not granting new requests unless they are from existing customers with a good track record and security."

A business confidence index produced by the Institute of Chartered Accountants and accounting firm Grant Thornton showed the first decline in two years, albeit still close to an all-time high. The index stands at +32.3 in the third quarter, of 2014 compared with +37.3 in the second quarter .

The economy is expected to expand by 0.9.% in the third quarter, but the pace of growth may slow down in the final quarter of this year.

Powered by Guardian.co.ukThis article was written by Simon Goodley, for The Guardian on Monday 4th August 2014 00.05 Europe/London

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