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MPC member votes for interest rate rise

A member of the Bank of England’s Monetary Policy Committee voted for base rate to increase this month, the first call for a rate rise in almost two years.

Minutes from the MPC meeting earlier this month show that Andrew Sentance voted to increase the base rate by 0.25 per cent, the first time a rate rise has been suggested since August 2008.

The remaining members voted to keep rates on hold.

Interest rates have now been at the record low of 0.5 per cent since March 2009.

The minutes reveal that some MPC members had concerns over whether the consumer prices index measure of inflation would return to its 2 per cent target in the medium term.

Chancellor George Osborne pledged to continue to target inflation at 2 per cent in his emergency Budget speech yesterday, but warned that inflation will reach 2.7 per cent by the end of the year.

CPI inflation fell to 3.4 per cent in May from 3.7 per cent in April, while inflation as measured by the retail prices index rose by 5.1 per cent in May from 5.4 per cent in April.

The minutes also show that one unnamed MPC member thought now was the right time to begin to withdraw from the Bank’s £200bn quantitative easing programme, given the continued above target rate of inflation.

But other members felt that uncertainty around the Budget meant that there was no need to change monetary policy this month.

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. William Kingsley 23rd June 2010 at 12:07 pm

    The inflation spike isn’t down to rampant spending so there is no need to increase rates. Inflation has been caused by VAT and fuel increases. Keep rates low for as long as possible please.

  2. Mr Sentance wants his head testing as we are a long way from recovery yet…to increase rates now will serve no other purpose than to send a shock through the general public and businesses to hold their reigns tight again expecting rates will continue to rise faster than expected and we will be back to square one. Is it not obvious that oil and gas prices are out of touch and that increases in vat will increase food prices. Last thing we all need is further costs in borrowing when cuts in salaries and jobs are also still on the cards.

  3. A quarter-percent increase would do nothing usefull and make no difference to the background economic situation. It would, however, put the fear of God into the markets and the bank’s lending policy would become even more strict. It just goes to show that the people in charge (most of them actually) haven’t actually got any more of a clue than the average window cleaner (nothing against window claeaners but most don’t have much interest in economic strategy).

  4. Inflation is down to price hikes in just about every essential area, certainly not to the public going on a spending spree by choice, quite the contrary I think!
    Not sure we can continue to hold earnings down, allow everything else to go up and expect people to spend in order to create growth and get us truly out of recession. An interest rate rise might just finish us all off.

  5. I am sure some people are crazy or are one sandwich short of a picnic. Inflation will only be caused at present by the increased cost of items due to tax increases from the government. Having made our future tight as it is for a lot of people how can they really warrent putting up interest rates and making life more difficult or do they think that the only people to have mortgages are wealthy. Please someone, wake up and smell the coffee.

  6. No Circus would be any fun without at least one clown.

  7. One day soon, the BoE will actually realise that localised demand destruction can only remove some inflation pressures.
    The BoE mandate is only to control inflation. If it makes us poorer that is tough.
    I don’t suppose any of the above commentators were demanding rate rises when the housing boom was threatening stability.

  8. Julian Stevens 23rd June 2010 at 4:29 pm

    So what? He was outvoted.

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