Excerpts from the Minutes of the MPC meeting held on 7 and 8 May 2015:
Mortgage approvals for house purchase had remained broadly flat, at around 61,000 per month in 2015 Q1. The average of the lenders’ house price indices had increased by 1.3% in April, a bigger rise than had been expected. Provisional data from the RICS survey for April had indicated that secondary housing market supply had continued to fall relative to housing demand. The net balance for new buyer enquiries had risen and that for new instructions to sell had fallen. This could indicate upside risks to house prices in the second half of 2015.
Overall, the Committee’s best collective view was that slack was currently broadly in the region of ½% of GDP and was likely to be fully absorbed within a year.
For some members, there were upside risks to the central projection for wage growth as unemployment continued to fall towards its long-run equilibrium rate and some other labour market indicators approached precrisis averages. Other members placed greater weight on the risk that subdued wage growth would be more persistent than envisaged in the May Inflation Report, reflecting a greater degree of economic slack, a more persistent downward effect on wage settlements from continued low inflation, or weaker-than-expected productivity growth.
While it was more likely than not that inflation would briefly turn slightly negative in the near term, the MPC’s best collective judgment was that this weakness would prove temporary. Around three quarters of the deviation of inflation from target could be accounted for by unusually low contributions from movements in energy, food and other goods prices. Although it was likely that low inflation would necessitate further open letters during the course of the year, the Committee’s central view continued to be that, in the absence of further falls in commodity prices, inflation rates close to zero were unlikely to endure for very long. The Committee’s central expectation was that CPI inflation would pick up notably towards the end of the year.
While there was a range of views over the most likely future path for Bank Rate, all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period.