Banking News Interest Rate Rise Spurned By Majority 18471194

Interest rate rise spurned by majority
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Interest rate rise spurned by majority

19 August 2010 / by Paul Dicken

Just one member of the Bank of England’s Monetary Policy Committee voted to raise interest rates when the Bank Rate was set earlier this month.

The minutes of the meeting where committee members voted to keep interest rates at 0.5 per cent showed that eight members voted to keep rates at the current level.

External member of the committee, Andrew Sentance, voted against, preferring a rise of 25 basis points which would have taken interests rates up to 0.75 per cent.

Sentance has voted previously for a rise in interest rates. Senior analyst at foreign exchange company Caxton FX, Duncan Higgins, said Sentance had ‘failed to rally any further support for a rate rise.’

“The general consensus remains that inflation doesn’t pose a significant enough threat to warrant a change in policy,” he added.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said the minutes did not alter the economic forecasting group’s view on the monetary policy outlook.

“Assuming that the government tightens fiscal policy as planned, we expect Bank Rate to remain at 0.5% for several years to come,” he said.

The committee considered easing some of the economic stimulus measures introduced in late 2008 and 2009, but concluded that ‘credit conditions seemed set to remain somewhat tighter for longer than expected’.

Referring to the continuing high rate of inflation at 3.1 per cent, the minutes said the increase in VAT would mean that inflation would stay above the two per cent target.

The committee attributed the increase in the cost of living to ‘one-off shocks to the exchange rate, commodities and VAT’ with the degree of costs being passed on to consumers dependent on the expectations firms have for inflation.

Higgins said: “Through the last couple of months it has become clear that the Bank is not yet ready to tighten policy regardless of inflationary pressures. If anything, the minutes reveal a growing willingness to expand monetary policy should the balance or risks necessitate it.”

© Fair Investment Company Ltd

Written by Editorial Team