BOE Hawks Drop Call for Higher Rates

        By Jason Douglas and Paul Hannon
        LONDON--Two Bank of England officials who had been pushing for higher interest rates in the U.K. dropped their campaign this month, a move likely to reinforce expectations the central bank won't lift borrowing costs in Britain until next year.
        Minutes of the rate-setting Monetary Policy Committee's January meeting, published Wednesday, revealed the nine-member panel voted unanimously to keep the BOE's benchmark interest rate at 0.5% and the size of its bond portfolio at 375 billion pounds ($567.1 billion).
        Martin Weale and Ian McCafferty, who voted for a rate increase each month between August and December, abandoned their call for higher borrowing costs.
        Their decision was a close call, the minutes record. But the two officials concluded that a premature rise in interest rates risked lengthening a period of low inflation, increasing the risk the BOE would fall short of hitting its goal of keeping annual inflation at 2%.
        The annual rate of inflation in the U.K. fell in December to 0.5%, its lowest rate in more than a decade, as a result of tumbling oil prices. There's a "roughly even chance" annual inflation will dip below zero at some point in the first half of 2015, according to the minutes.
        The minutes record that BOE officials led by Gov. Mark Carney fret that weak inflation may bear down on pay settlements and delay a long-awaited rise in wage growth. That in turn may contribute to lower inflation in future.
        "It is possible that the fall in near-term inflation might become more persistent if it lowered inflation expectations, pay and other cost growth in a way that might become self-perpetuating," the committee concluded.
        The MPC's deliberations underscore central banks' uneasiness about the risks associated with a spell of too-low inflation.
        Officials at the European Central Bank are expected on Thursday to announce fresh stimulus measures to power growth and lift prices in the neighboring eurozone, which is flirting with outright deflation, a sustained fall in prices that hurts growth and makes it harder for households and businesses to service their debts.
        Still, the minutes record BOE officials are reasonably upbeat about the prospects for growth in the U.K. Staff expect the economy to expand 0.7% in the first quarter of 2015, buoyed by consumer spending.
        Write to Jason Douglas at jason.douglas@wsj.com and Paul Hannon at paul.hannon@wsj.com
        (END) Dow Jones Newswires

        January 21, 2015 04:35 ET (09:35 GMT)

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