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24th of August 2011
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Three policy members again vote for interest rate rise

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by Kay Mitchell
Three policy members again vote for interest rate rise

Minutes of the Bank of England’s May 4-5 meeting have been released today and have revealed the Monetary Policy Committee (MPC) again voted 6-3 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.

For the fourth consecutive month, three policy members voted for an interest rate rise to combat stubbornly high inflation.

For almost a year now, outgoing policymaker Andrew Sentance has voted for a rise, while Martin Weale and Spencer Dale also reiterated their case for higher interest rates.

“There was little evidence that elevated inflation expectations were becoming entrenched in wage and price setting. Nonetheless that risk remained material given the elevated near-term outlook for inflation,” the minutes said.

However, the pressure will be on the central bank next month to lift rates after the Office for National Statistics (ONS) yesterday announced Consumer Price Inflation (CPI) surged to a 2½-year high of 4.5% in April.

Inflation is now more than double the target of 2% and has been above this level since December 2009 and is expected to remain above target during 2012.

Last week, the Bank of England warned that inflation could reach 5% later this year, driven higher by rising energy costs.

However, the Bank said it continues to be presented with a dilemma.

Despite pressure to lift interest rates to combat stubbornly high inflation, the central bank has been reluctant at this stage to lift rates when the recovery appears to be sluggish.

In related news, Mr Sentance will leave the MPC when his term ends on May 31. He will be replaced by Ben Broadbent, a Goldman Sachs economist, who will assume his position in time for the June rate-setting meeting.

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News posted: May 18, 2011

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