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MPC remains split over base rate increase

The Bank of England’s Monetary Policy Committee remained split on monetary policy in May, with Committee members voting as they did in April.

Committee members voted on whether base rate should be increased from its current record-low level of 0.5 per cent and whether its quantitative easing programme should be increased from £200bn.

Minutes from the May meeting show six members voted in favour of keeping base rate at 0.5 per cent. They were BoE governor Mervyn King, Charles Bean, Paul Tucker, Paul Fisher, David Miles and Adam Posen.

Andrew Sentance, who has called for base rate to be increased since the middle of last year, continued to call for interest rates to be increased by 0.5 per cent. He is set to leave the MPC at the end of the month and will be replaced by Goldman Sachs managing director Ben Broadbent.

Spencer Dale and Martin Weale called for base rate to be increased by 0.25 per cent.

Adam Posen remains the only member of the Committee to call for the quantitative easing programme to be increased, asking for a further £50bn to bring the total to £250bn.

Summarising the thoughts of the six members who voted to keep base rate at 0.5 per cent, the minutes say: “An increase in Bank rate in current circumstances could adversely affect consumer confidence, leading to an exaggerated impact on both spending and firms’ perceptions of their desired productive capacity.

“And, were the downside risk to household spending to materialise, a path for policy weaker than that implied by market prices might become appropriate.”

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