Policymaker Andrew Sentance continues argument for higher interest rates

| September 22, 2010 | 0 Comments

Minutes of the Bank of England’s September meeting have been released today and have revealed that the Monetary Policy Committee (MPC), again, voted 8-1 earlier this month to keep interest rates at the historic low of 0.5% – where they have been since March 2009.

For several months now, the decision was not unanimous after policymaker Andrew Sentance again voted for interest rates to be lifted.

Mr Sentance’s view to raise rates comes as inflation remains stubbornly high.

UK inflation currently stands at 3.1% - the ninth consecutive month that inflation has been above the Bank of England’s target of 2%.

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 already questioned how long interest rates can remain at this historically low level.

However, the minutes suggest that other policymakers are concerned about growth.

“The probability that further action would become necessary to stimulate the economy and keep inflation on track to hit the target in the medium-term had increased,” the minutes said.

While, many economists expect the central bank to keep interest rates at the record low until next year, further quantitative easing (a process known as printing money) is likely to stimulate the economy.

Earlier this month, policymaker Martin Weale suggested the Bank should consider extending its £200 billion QE programme. Weale, who joined the MPC last month, said the economy many need to be stimulated further and one “obvious” way is QE.

The BoE minutes come a day after the US Federal Reserve elected to keep interest rates on hold, but it has also hinted that it is prepared to inject more money into the economy, if needed.

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