Three members of the Bank of England Monetary Policy Committee continued to press for an interest rate increase when the committee voted to keep the Bank Rate at 0.50 per cent on 7 April.
However, more members voted to keep the Bank Rate – the official interest rate – at 0.50 per cent than the previous month. Six members voted to maintain interest rates at their historic lows, including Adam Posen who had previously called for rates to be cut further.
With two members, Spencer Dale and Martin Weale, voting for a 0.25 per cent increase in rates, and one member, Andrew Sentance, voting for a 0.50 per cent increase, the minutes showed no further support for a rate increase.
Andrew Sentance will finish his tenure on the MPC at the end of May. The government announced in March that Ben Broadbent, a managing director at Goldman Sachs, would replace Sentance on the committee from 1 June 2011.
Concerns about the economy
The minutes stated that: “It was still too early to know whether the slowdown in growth towards the end of 2010 had been temporary, or whether the weakness in the contemporary indicators of household spending heralded a more protracted weakness in consumption growth.”
“An increase in Bank Rate in current circumstances could adversely affect consumer confidence, leading to an exaggerated impact on spending. Although the global recovery remained solid, it was not clear yet that a boost to growth from net trade was under way.”
As well as fears over derailing the domestic UK recovery – warnings have been made about the impact on individual and corporate debt obligations of a rate rise – the Monetary Policy Committee (MPC) is concerned that inflation is dangerously high.
The minutes said the period of above-target inflation could cause high inflation expectations to become embedded in wage and price-setting. This would make it harder for the committee to rein in inflation in the future.
However, the majority of members of the MPC believe the risk that ‘increased inflation expectations might become entrenched in wage and price-setting was material, but there was no evidence yet of that crystallising.’
The latest inflation figures showed a slight drop in inflation to four per cent in March, on the official Consumer Prices Index (CPI) measure. The Bank of England target is to keep inflation closer to two per cent.
The MPC discussion in its April meeting attributed the high levels of inflation to ‘the impact of higher oil prices and other commodities’.
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