The release of the Monetary Policy Committee minutes revealed that, against most expectations, two members of the committee voted in favour of raising UK interest rates by 0.25%. If Ladbrokes were to have offered odds on who the dissenters might be, Martin Weale's name would probably have been the favourite. Mr Weale famously dissented in 2011 calling for a rate hike, and recently appeared in press articles suggesting that he felt the time was approaching to start the "normalisation" of interest rates. Studying the accompanying financial commentary, unlike Henry Fonda in “12 Angry Men”, the consensus view appears to be that Mr Weale will remain in the minority for a while, unable to sway further members, leaving rate expectations for 2014 where they are. One has to also wonder that if the vote was taken today would the result have been the same given Tuesday’s weaker than expected inflation data and the recent economic data from the euro area. The release of the minutes gave sterling a little boost after its recent bout of weakness and led the FTSE 100 to pause for breath after 5 solid days performance.
In America the release of the minutes from the last Federal Reserve meeting, the US equivalent of the Bank of England's monetary policy committee, appeared to show less dissension in the ranks. The minutes, which some considered more hawkish than previous ones, focussed on the faster than expected improvement in the employment data. However, despite the encouraging outlook for employment, the Federal Reserve saw no need to change interest rate expectations. There was the usual accompanying caveat that the committee reserve the right to change their minds should the circumstances change. The gist of the minutes comes across as showing a cautious confidence in the recovery, but will want to see confirmation before risking raising interest rates, and whilst inflation expectations remain subdued, there is no pressure to act. The committee appears to be at pains to stress that communicating clearly to the market the timing and frequency of rate changes is paramount.
The US dollars recent strength continued as the currency climbed to levels not seen for nearly a year. The treasury market remained unmoved by today's release as yields remain close to the lows of the year, short term yields rose modestly. The rising dollar did not dampen the enthusiasm of the equity markets as the S&P 500 once again climbed to within a few points of its all time high.
In our view these minutes only confirm that rate rises in either region will not occur for some time yet.