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Second MPC member votes for interest rate rise

Second MPC member votes for interest rate rise

Category: Economy

Updated: 26/01/2011
First Published: 26/01/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A second member of the Bank of England's Monetary Policy Committee (MPC) has voted to increase the base rate of interest.

Minutes from the MPC's meeting earlier this month show that Martin Weale voted to increase the rate from 0.5% to 0.75%.

He joined Andrew Sentance who has consistently voted to increase the measure, arguing that a number of small drawn out rises will better serve the economy than a number of increases in succession.

The meeting was conducted on the 12th and 13th of January – before the surprise GDP figures which showed the economy contracted in the last three months of last year.

In the meeting, the committee considered the case for increasing the rate, saying that a rise now could lessen the likelihood of a larger increase in the future if inflation remains stubbornly above the long-term 2% target.

When it came to voting, however, just Sentance and Weale voted for a rise. They both felt the evidence suggested that the balance of risks was already sufficiently clear to warrant an immediate increase in bank rate, said the minutes.

There was also a dissenting voice on quantitative easing, as Adam Posen once again voted to increase the size of the programme by £50 billion, up to £250 billion.

The minutes show that while a majority of the MPC are united in their belief that fiscal policy should remain unchanged for the time being, there are members that would like to make changes immediately.

The committee also said that inflation would be likely to remain above target in the medium term.

Rising inflation has led many analysts and experts to predict that interest rates will now be increased earlier than expected, possibly as soon as March.

The Governor of the Bank of England, Mervyn King, said yesterday that inflation could rise to 4%-5% in the coming months as a result of higher food prices and a rise in VAT.

"These minutes signal an unwelcome shift towards a tougher monetary stance," David Kern, chief economist at the British Chambers of Commerce (BCC), said.

"On this occasion, two members, rather than one, voted in favour of an immediate increase in interest rates. But the economic background has changed significantly for the worse since the meeting took place with a worrying decline in GDP in the fourth quarter of last year.

"Our view remains that an early increase in interest rates would be a major mistake which would increase the threat of derailing the recovery."

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