Bank minutes reveal two policy members voted for rate rise

| January 26, 2011 | 0 Comments

Minutes of the Bank of England’s January meeting have been released today and have revealed that the Monetary Policy Committee (MPC) voted 7-2 to lift interest rates and 8-1 to restart the Bank’s quantitative easing (QE) scheme.

Adam Posen, again, called for an injection of £50 billion via the QE scheme to boost the economy.

However, as well as Andrew Sentance, policymaker Martin Weale also voted for a quarter-point rate rise to combat stubbornly high inflation.

Earlier this week, Mr Sentance again warned that the central Bank faces losing its credibility if it is not seen to be fighting inflation.

The Office for National Statistics (ONS) announced last week that Consumer Price Inflation (CPI) rose to an annual rate of 3.7% in December, up from 3.3% in November.

The figure was much higher than the 3.4% analysts had expected and inflation has now been above its target of 2% for over a year.

Many leading business groups have suggested that inflation could reach 4% – because of the recent VAT hike.

The CPI inflation rate is a benchmark for the MPC and Mr Sentance continues to vote for interest rates to be lifted from their current low of 0.5% to bring inflation down, and this month, Mr Weale shared his opinion.

The January minutes said: “For most members, recent developments implied that the risks to inflation in the medium term had probably shifted upwards.”

It added: “Some members also noted that an increase in Bank Rate … might be misinterpreted as a signal that the Committee would attempt to bring inflation back to target excessively rapidly, which could cause expectations of a relatively sharp tightening of monetary policy that could have a detrimental impact.”

In related news, the ONS yesterday revealed the UK economy contracted by 0.5% in the October to December period.

The figures shocked economists who had expected growth of between 0.2-0.5%

Analysts had expected economic growth to slow – in light of the Government’s massive spending cuts – designed to bring down the budget deficit.

However, the results came as a surprise to many but have been attributed to the poor weather late last year.

These figures, however, will now put the Bank of England in somewhat of a predicament. It will be reluctant to lift interest rates when the recovery is losing momentum.

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