Third MPC member joins call for rate rise
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Three members of the Bank of England’s Monetary Policy Committee called for a rise in interest rates this month, MPC minutes reveal.
Andrew Sentance, who has been calling for an increase to the Bank base rate since last June, voted for an increase of 0.5 per cent at February’s meeting.
Spencer Dale and Martin Weale wanted an interest rate rise of 0.25 per cent, with the remaining six committee members voting to hold rates at 0.5 per cent.
Interest rates have now been held at the all-time low of 0.5 per cent since March 2008.
The level of quantitative easing was also held at £200bn. But the latest minutes show that Adam Posen continued in his call to boost the asset purchase programme by £50bn.
The minutes say: “For three members, the case for removing some monetary stimulus at this meeting was compelling.
“For those members, the upside risks to the medium-term inflation outlook from global inflationary pressures and the possibility that inflation expectations would move up outweighed the downside risks to inflation associated with uncertainty about the strength of the recovery and the possibility of persistent spare capacity.”
The argument for increasing rates, even among the MPC members who voted to hold, seems to be gaining traction.
The minutes say: “Of those members not favouring a rise in bank rate, some thought that the case for an increase had nevertheless grown in strength.”
But they also argued that it would be better to wait to see if GDP figures improved before any increase, as a rise now may damage already fragile consumer confidence.
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Readers' comments (8)
Patrick Hearn | 23 Feb 2011 1:25 pm
Do these people live in another world. I am a financial adviser and all my clients have tightened their belts in the last 2 years or so. With petrol soaring ( cost me £56 to fill my Prius last week ) and I am sure lots more for many, together with the generally cost of living going up ( not due to the consumer spending more - but due to external inflation on commodities ), they feel that making us poorer will help the economy? They have to be joking. They got it wrong coming down fron May 2008, when I knew something was wrong, and they apologised in Sept 2008 when they realised something was wrong. Anyone else would have been sacked for that mistake. So, will they get it wrong again and get away with it again? Mervyn said last week that markets expectations were up, does he want this as a fallback when they make the wrong decision and then blame it on - Well it was the market expectations that rates would go up. He should impose his own expectations. Well all I can finish with is Rates UP - High street down and 2nd Dip?
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Anonymous | 23 Feb 2011 1:30 pm
Kill off the recovery completly for the ordinary person why don't they?!!!!!!!
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Anonymous | 23 Feb 2011 1:31 pm
I would suggest those suggesting a rise in rates to remedy inflation hold, until the impact and scope of soaring oil prices as a result of the instability in the Middle East has been assessed, the threat of oil reaching $140-150 a barrel is real, and inflation will hit all transport and goods as a result, raising rates will further hinder spending, as people struggle to cover the cost of basics, this is not the same animal as previously, it looks more like stagflation. I doubt any rate rise will improve the figuresm and will only send into a real economic tail spin, it is not only Libya and Egypt with instability, but nearly the whole Middle East that is uneasy.
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John Harding | 23 Feb 2011 1:32 pm
With the level of inflation being driven by international energy, food and other commodity prices squeezing the domestic economy when VAT has just been raised and when there are significant cuts yet to come through in the public sector I am yet to be persuaded that raising interest rate will have anything other than a detrimental effect on the UK economy.
I understand the B o E may consider it's credibility to be at stake but that is a small price to pay for the extra difficulty the economy will encounter, trying to climb out of recession and absorb public sector redundancies, that an increase interest rates in the near future would impose.
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Barry Shereston | 23 Feb 2011 2:09 pm
What is the logic of an interest rate rise? It almost seems that this will happen by default (i.e, the need to do something different to the last few months) The general public and businesses are being hoodwinked. Consumer spending is already under severe pressure from the economic outlook and employment concerns, and small businesses still can't get loans at sensible interest rates - and now to talk about a rise, what sense does this make! The current trend in inflation is caused by commodity/Oil prices not rampant comsumer spending, so to penalise the UK public because of commodity market drivers is just plain wrong. Put some controls on the retail price of fuel - that will reduce inflation immediately. I can't think of any benefit from a general interest rate rise at this time - Oh, except perhaps the money market and Banks.
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Al lover | 23 Feb 2011 2:43 pm
Do these guys have mortgages to pay? could someoneexplain just exactly what a rise in interest rates woould achieve please?
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Stuart Burkin | 23 Feb 2011 3:54 pm
I think John Harding's response at 1.32pm today encapsulates this perfectly and would like this put in front of Messrs Sentence Dale and Weale for 'their' comments.
I know Andrew Sentence is a fan of Led Zepp and think interest rate rises will be a 'Stairway' in the wrong direction, more like Alice Cooper 'Welcome to my Nightmare'!!
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Don't panic - He leaves in 3 months. | 23 Feb 2011 7:45 pm
This is interesting, as it highlights the benefits of having a commitee rather than one person setting rates. If 3 people voted for a raise then 6 people voted to hold rates.
Andrew Sentance's term runs out in May, could it be that he is trying to raise his profile before departing?
I listened to a talk by Prof. David Miles, only yesterday, who voted to hold at the last meeting. Whilst he was not willing to commit to any future votes he does understand that the factors driving inflation are not going to be affected by raising rates. It appears that there are twice as many MPC members who hold this view than those who don't.
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