Log In | Register
LONDON — A second member of the Bank of England's Monetary Policy Committee has backed a rise in interest rates, though it still remains a minority view, minutes of the panel's January meeting revealed Wednesday.
The latest meeting came before Tuesday's surprise report that Britain's economy shrank 0.5 percent in the fourth quarter, a slump only partly due to bitter December weather. That reversal led analysts to believe that there was no immediate prospect that the Bank would raise its all-time low base rate of 0.5 percent.
The MPC minutes said Martin Weale had joined Andrew Sentance in voting for a hike in the base rate from 0.5 percent to 0.75 percent. Seven other members voted to hold the line, with one of them — Adam Posen — again alone in calling for an additional 50 billion pounds ($80 billion) investment in quantitative easing.
There has been increasing concern among the nine MPC members about inflation, which rose to 3.7 percent in December.
"For most members, recent developments implied that the risks to inflation in the medium term had probably shifted upward. For some of those members, the decision this month was finely balanced," the minutes said.
On Tuesday, Bank of England Governor Mervyn King defended the strategy of keeping the rate on hold, arguing that inflation was largely called by rising commodity import prices which the Bank was powerless to influence.
"If the MPC had raised (the) bank rate significantly, inflation might well have started to fall back this year, but only because the recovery would have been slower, unemployment higher and average earnings rising even more slowly than now," King said.
"The erosion of living standards would have been even greater. The idea that the MPC could have preserved living standards, by preventing the rise in inflation without also pushing down earnings growth further, is wishful thinking."
King said inflation could hit 5 percent before falling back.
"It is becoming increasingly apparent that this spike is becoming steeper and longer than had anticipated by many, which is clearly rattling nerves at the Bank of England," said Chris Williamson, chief economist at Markit. If surveys show a rebound in January, he added, "the case for a rate rise will remain firmly on the MPC's table."
However, Vicky Redwood, senior U.K. economist at Capital Economics, expected no rate hike this year. "Yesterday's GDP figures could well dissuade the waverers from rushing into a premature policy tightening, " she said.
