The Bank of England. Picture: REUTERS
The Bank of England. Picture: REUTERS

London — Bank of England chief economist Andy Haldane unexpectedly threw his support behind an immediate interest rate increase, defying the majority of policy makers who voted to keep the rate unchanged.

The monetary policy committee held the bank rate at 0.5%, as predicted by all 61 economists in a Bloomberg survey. But in a surprise a 6-3 vote, Haldane joined Ian McCafferty and Michael Saunders in calling for a quarter-point hike.

That is the first time a Bank of England chief economist has dissented since 2011.

Policy makers led by governor Mark Carney also voted to change the guidance on when they will consider reducing the stock of debt purchased in the bank’s quantitative easing programme. They now say they will not consider selling the stock until the key rate reaches 1.5%, versus 2% previously.

Thursday’s decision leaves the door wide open for a rate increase at the bank’s next meeting in August. Such a move was given about a 50% possibility by investors before the meeting, after a run of mixed economic data left the market unsure of the BoE’s outlook.

Since May, economic data has showed a pick-up in services and retail sales, partly driven by hotter-than-average public holidays and the wedding of Prince Harry and Meghan Markle, while manufacturing output and wages disappointed.

Officials said the data was largely in line with their prediction that the economy’s first-quarter slowdown was temporary. The majority of voters this month said there was still some value to seeing how the data evolve, whereas the minority pushing for tighter policy said those benefits were limited.

In the discussion of the stock of asset purchases, the MPC said any reductions would happen at a gradual and predictable pace. That echoes the bank’s guidance on interest rates, which they say will rise in a gradual pace and to a limited extent.

The decision to lower the guidance on quantitative easing bond sales reflected officials’ view that the effective lower bound of the key interest rate was lower than before.

While the central bank had no press conference scheduled for this decision, Carney was to give the annual Mansion House speech in the heart of London’s financial district later on Thursday.