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Bank of England chiefs opt against interest rate hike

By Peter Cripps

Published 23/06/2011

The Bank of England has edged further away from raising interest rates this month after its newest member voted against a hike, minutes of its June monetary policy meeting have revealed.

Ben Broadbent replaced arch-hawk Andrew Sentance on the Bank's rate-setting committee earlier this month and joined six other members who opted to keep interest rates at their record low of 0.5%.

Mr Sentance had previously voted for a 0.5% increase in the Bank rate in a bid to beat down soaring prices, which are squeezing household budgets.

This meant that out of the nine members of the Monetary Policy Committee (MPC), the number voting for a rise in interest rates declined to two from three the previous month.

Spencer Dale and Martin Weale continued to back a 0.25% rise in rates, while the other seven members opted to keep rates on hold. Adam Posen reiterated his call for a second bout of quantitative easing to pump more money into the economy.

The minutes also revealed that the MPC was still worried about the rise in inflation, with the consumer prices index (CPI) measure of inflation having stayed at 4.5% - more than double the 2% target - in May.

They said it remained likely that CPI would continue to rise in the near-term - probably above 5% - before falling back again.

But they said there remained little sign that higher inflation was leading to demands for higher wages.

Members added that there was evidence that a slowdown in the global economy, partly caused by the tsunami in Japan, could affect the UK's recovery.

Most members said the current weakness in demand, particularly in consumer spending, was likely to persist for longer than previously thought. With economic growth expected to remain below average during 2011, members said inflation was more likely to decline over the medium term - and for some members it was possible that more quantitative easing might be needed if downward pressure on inflation materialised.

However, for the two members who voted for an increase in rates, the prospect of higher inflation in the near term increased the possibility of inflation becoming entrenched.

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