Wednesday, February 23, 2011

Bank of England MPC minutes: Spencer Dale joins hawks in call for interest rate rise

23 Feb 2011

Mr Dale\'s call for a 0.25pc increase with Martin Weale, who voted for a rate rise last month, came as Andrew Sentance, the most outspoken of the hawks, called for interest rates to be increased by 0.5pc (50 basis points), at the MPC meeting held between February 9 and 10.

The minutes also suggested that some of those opposed a rate hike this month would consider if it if the economy shows signs of picking up after an unexpected fall in output at the end of 2010.

\"Most members agreed that the balance of risks to inflation in the medium term relative to the target had moved upwards in recent months and that the case for withdrawing some of the current exceptionally accommodative monetary policy had consequently been strengthened,\" the minutes said.

Economists had expected a repeat of last month\'s 7-2 vote, though another member joining the BoE\'s hawkish camp had been seen as a possibility after BoE Governor Mervyn King said last week that the MPC was unusually divided.

Inflation is currently 4pc, double the BoE\'s 2pc target, but last week the central bank forecast it would fall below target in two years if interest rates rise gradually.

Dale and Weale favoured a smaller rate increase than Sentance because they believed there was greater uncertainty about the economic outlook. Sentance was concerned that firms were passing on higher costs.

Adam Posen repeated his call for a £50bn expansion to the BoE\'s programme of quantitative easing asset purchases to £250bn pounds.

But he acknowledged that a sustained increase in global demand or a shift in sentiment against sterling could outweigh domestic downward pressures on inflation, but he did not see this risk as large enough to require tighter policy now.

The minutes follow a BoE quarterly Inflation Report which suggested rates may have to rise two or three times this year for the central bank to have an optimal chance of getting inflation back on track in the medium term.

The minutes showed that the MPC saw upward risks to inflation from commodity prices, loose monetary in emerging markets and inflation expectations - though there was little evidence that the last of these had increased materially.

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