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Three way split at MPC over inflation continues

The three way split in the monetary policy committee over how to deal with elevated inflation continues, according to the minutes from their last meeting.

Released this morning, the minutes from the MPC’s meeting on the December 8th and 9th show external member Adam Posen maintains his call for further quantitative easing while external member Andrew Sentance continues to call for interest rates to be raised by 25 basis points.

Seven members voted for the base rate to stay at 0.5 per cent and to maintain QE at £200bn.

The minutes say: “Committee members differed in the extent to which they had revised their views of the overall balance of risks to the medium-term outlook for inflation. For most members, the balance of risks had not changed sufficiently to warrant a change of policy.

“The weight of evidence from both home and abroad continued to indicate the margin of spare capacity was likely to bear down on inflation and bring it back towards the target in the medium term once the impact of temporary one off factors had waned.”

Any decision by the MPC needs to be agreed by a majority of the nine members.

Earlier this month Bank of England Governor Mervyn King defended the MPC’s decision not to raise interest rates in front of the Treasury select committee saying elevated inflation was down to “temporary shocks”.

The minutes show that Sentence told the committee that raising interest rates would increase confidence inflation would drop from its current rate of 3.3 per cent, while Posen says increasing QE by £50bn is necessary to prevent inflation undershooting the 2 per cent target in the medium term.

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