Bank of England split over rise in interest rate widens
Interest rate-setter Ian McCafferty has confirmed his backing for a hike just hours after a fellow policymaker said it would be a mistake in the latest sign of a deepening split at the Bank of England.
Mr McCafferty, who was among three members on the Monetary Policy Committee (MPC) to vote for a rise from 0.25% to 0.5% at last month's meeting, said there was "a need for change" as inflation soars.
He told the Daily Post in North Wales it would be "prudent" to increase borrowing costs.
He said: "We made the last interest rate cut from 0.5% to 0.25% last August after the EU referendum decision when it was felt that a stimulus was needed.
"Since then the economy has not slowed to the extent we feared it would last summer and, meanwhile, inflation has been high. I feel on the balance of monetary policy that there is a need for change. I think this would be justified and would be the prudent thing to do at this stage."
But another MPC member, Gertjan Vlieghe, insisted on Monday that it would be wrong to raise borrowing costs at a time of slowing consumer spending.
He commented: "This is an environment where a premature hike would be a bigger mistake than one that turns out to be slightly late. I think the consumption slowdown is here, it's not over. I don't think there's going to be a sufficient offset from investment and net exports to compensate for that."
There has been a mounting war of words from MPC members after they voted 5-3 in favour of keeping rates on hold last month. Governor Mark Carney said soon after that "now is not yet the time" to raise rates, only to be contradicted by chief economist Andy Haldane, who revealed he may vote for a rate hike in the second half of the year. Mr Carney then appeared to back-track, saying last week that a rate hike may "become necessary".
Mounting confusion over the Bank's position on rates has left economists unclear over whether rates will rise at the August meeting.
With June seeing the most dissent on the MPC since 2011, and signs of a growing split since then, it is thought the decision may be a close call.
Around eight million people in the UK have never seen an interest rate rise by the Bank of England in their adult lives, according to analysis carried out a decade after the last increase.
July 5 marks 10 years since the Bank of England increased rates from 5.5% to 5.75%. Since then, there has been a series of rate cuts.
Financial services firm Hargreaves Lansdown said £1,000 stashed in a typical instant access savings account in July 2007 would be worth just £878 in today's money, once the eroding effects of inflation are taken into account.