* Bank of England holds interest rates, as expected
* Some rate setters could vote for hike soon
* New MPC members complicate outlook for rates
(Adds economist comment, market reaction)
By Andy Bruce
LONDON, July 10 The Bank of England held
interest rates at record lows on Thursday but the pace of
Britain's recovery looks likely to divide its policymakers soon
over when to start weaning the economy off its support.
The Bank's Monetary Policy Committee (MPC) kept its
benchmark interest rate at 0.5 percent, its level since the
worst of the financial crisis more than five years ago, and made
With little sign of a slowing in Britain's surprisingly
strong bounce-back from a long period of stagnation after the
crisis, some BoE policymakers are expected to begin casting
votes in the coming months for a first rate hike since 2007.
The BoE is broadly expected to raise rates either at the end
of this year or in early 2015, probably before the U.S. Federal
Reserve which on Wednesday detailed how it plans to make its own
exit from the era of ultra-loose monetary policy.
There was little market reaction.
"However we suspect that this will be the last MPC meeting
over which markets will remain so relaxed," said Philip Shaw,
economist at Investec.
"August will herald the publication of the BoE's Quarterly
Inflation Report and an updated set of forecasts, which might
well act as a catalyst for the more hawkish members of the
committee to contemplate voting for a tightening."
Sterling hit a nearly six-year high against a basket of
currencies last week, with major retail groups like Burberry
and Associated British Foods on Thursday citing
strains caused by a strong pound.
Still, surveys last week have shown British businesses in
rude health overall and house prices are still rising rapidly,
even if there are some signs that the heat in the property
market is cooling.
STILL A LONG WAY TO GO
But there have also been reminders that the economy is a
long way from putting itself on the kind of footing that would
support growth over the long term.
Data earlier on Thursday showed Britain's goods trade
deficit with the rest of the world widened unexpectedly,
underlining how exports have failed to pick up as hoped for by
the BoE and the government.
And wage growth is still weak, suggesting the economy can
grow further without risking a pick-up in inflation.
"Although this is getting less predictable, we do not think
the data between June and July will have been enough to induce
MPC hawks to vote for a rate rise just yet," said Liz Martins,
an economist at HSBC.
"Headline unemployment continues to tumble, but inflation
and wage growth numbers have been even weaker since the
unanimous vote last month."
New additions to the nine-strong MPC have complicated
attempts by economists to judge how many rate-setters are likely
to be close to voting for a rate hike.
One of three new faces joining the MPC, Minouche Shafik,
said on Wednesday the Bank is likely to lower its estimate of
spare capacity in the economy next month, something that would
suggest the time for a rate hike is fast approaching.
The BoE publishes its next quarterly Inflation Report on
Aug. 13 when Governor Mark Carney and other officials will give
a detailed update on their outlook for the economy.
Shafik also said she believed Britain's productivity gap -
the disparity between the number of people in work and the
output they produce - was unlikely to be corrected much by the
return of growth, another potential signal that she might think
the time for a rate hike is coming.
But she stressed that the outlook for productivity is
unclear, underscoring the uncertainty about how close the Bank
really is to raising rates. Shafik starts as a deputy governor
of the BoE on Aug. 1.
(Editing by William Schomberg and Toby Chopra)