Bank voted 8-1 to hold rates in August
Minutes of the Bank of England’s August meeting have been released today and have revealed that the Monetary Policy Committee (MPC) voted 8-1 earlier this month to keep interest rates at the historic low of 0.5% – where they have been since March 2009.
It was Martin Weale’s first rate-setting meeting. Mr Weale replaced Kate Barker after her term ended on 31 May.
Meanwhile, for the third consecutive month, the decision was not unanimous after policymaker Andrew Sentance voted for interest rates to be lifted by 0.25 percentage points.
Mr Sentance’s view to raise rates comes as inflation remains stubbornly high. Official data yesterday revealed British annual consumer price inflation (CPI) eased slightly to 3.1% in July – down from 3.2% in June – however, the rate still exceeds the 2% target.
The CPI inflation rate is a benchmark for the MPC but the Committee continues to keep UK interest rates on hold at the historically low level and Mr Sentance has previously questioned how long interest rates can remain at this historically low level.
Presenting the Quarterly Inflation Report, the Bank of England’s Governor, Mervyn King, last week predicted that inflation will fall below its target of 2% by the end of 2011.
In its previous inflation report in May, the Bank said inflation would remain above the 2% target for the remainder of 2010.
However, the recent decision to hike VAT to 20% next year by the coalition Government will undoubtedly keep inflation higher, said the Bank.
Meanwhile, the minutes said the majority of the MPC thought it would be best to keep interest rates on hold and maintain the quantitative easing scheme.
“These members stood ready to respond in either direction as the balance of risks evolved,” the minutes said.
“Increases in the prices of some agricultural commodities in the days leading up to the meeting suggested that the increased volatility of CPI inflation seen in recent years might continue,” the minutes also said.
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