MPC member continues his argument for higher interest rates

Bank of England policymaker, Andrew Sentance, has reiterated that the Bank’s Monetary Policy Committee (MPC) needs to gradually lift interest rates from their historic level of 0.5% as high inflation persists.

The latest official data shows that British annual consumer price inflation (CPI) eased to 3.2% in June – down from 3.5% in May - however, the rate was higher than economists had expected.

Furthermore, the rate exceeds the 2% target and has remained stubbornly high over recent months.

At June’s interest rate meeting, Mr Sentance voted for rates to rise to 0.75% from their current historic low of 0.5%.

The CPI inflation rate is a benchmark for the MPC but earlier this month, the Committee elected to keep UK interest rates on hold at the historically low level of 0.5% for the 17th consecutive month and Mr Sentance continues to question how long interest rates can remain at this historically low level.

Speaking to BBC Radio in an interview broadcast yesterday, Mr Sentance said: “The question we are now facing is, with the economy recovering and with the inflation having been higher than we expected, whether we now need to begin to move (rates) upwards again.”

He continued: “If we can raise interest rates in a gradual way that will be helpful for the recovery because it will mean that there won’t be big shocks.”

Minutes of this month’s rate-setting meeting will be released on Wednesday and they are expected to show Mr Sentance will be the only member to vote for a rise in interest rates.

In related news, it was announced earlier this month that Martin Weale will join the MPC in time for the August meeting.

Mr Weale replaces Kate Barker after her term ended on 31 May.

Mr Weale is one of four external members appointed by the Government and for the past decade and a half has been in charge of the National Institute of Economic and Social Research (NIESR) – an influential think tank which provides regular updates on economic trends.

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