Belfast Telegraph

UK Website Of The Year

Support grows for rate hike among BoE chiefs

By Jamie Grierson

Published 24/02/2011

The number of Bank of England policymakers backing an interest rate hike increased earlier this month as the threat of inflation heightened, minutes have revealed.

Spencer Dale, chief economist at the Bank, joined fellow monetary policy committee (MPC) members Andrew Sentance and Martin Weale in voting to lift rates from their historic low of 0.5%, despite a shock decline in the economy in the final three months of 2010.

Furthermore, the details of the meeting revealed that some members who voted for no change in policy thought the case for a rate hike had "grown in strength".

However, the majority is prepared to wait for further insight into the strength of economic recovery in the first quarter of this year before tackling soaring inflation, which hit 4% in January and could reach close to 5% according to the Bank's forecast.

The increasing prospect of a rate hike meant the pound surged, hitting an annual high of £1.627 against the US dollar.

Meanwhile, concerns mounted over the impact the unfolding political crisis in Libya would have on soaring oil prices and subsequently the overall rate of inflation.

The minutes of February's meeting showed that Mr Sentance, who has voted in favour of a hike since the summer, now wants to see rates at 1%, higher than his previous vote for an increase to 0.75%.

Mr Weale, who voted for a hike for the first time in January's meeting, and Mr Dale want rates to increase to 0.75%.

The minutes said the three hawks found the inflation threat outweighed risks associated with the uncertainty surrounding the strength of the recovery.

However, the majority who passed the 'no change' outcome decided there was "merit" in waiting to see how well the economy performed at the start of the year, to help assess whether the 0.5% decline in GDP output in the fourth quarter was a one-off.

Expert reaction to the minutes was mixed. ING economist James Knightley said: "So far the data has bounced back from December's weather-related weakness, but with household spending constrained by negative real disposable incomes, falling house prices and constrained credit conditions, the prospect for growth remains poor."

But Shehan Mohamed, economist at Cebr, said the minutes provided evidence that interest rates could rise as early as next month and may reach 1% by the end of 2011.

Your Comments

COMMENT RULES: Comments that are judged to be defamatory, abusive or in bad taste are not acceptable and contributors who consistently fall below certain criteria will be permanently blacklisted. The moderator will not enter into debate with individual contributors and the moderator’s decision is final. It is Belfast Telegraph policy to close comments on court cases, tribunals and active legal investigations. We may also close comments on articles which are being targeted for abuse. Problems with commenting?

Read More

From Belfast Telegraph