MPC hawk turns up heat on inflation

A member of the Bank of England’s Monetary Policy Committee (MPC) has said the base rate should rise from 0.5 per cent.

The MPC has kept the low cost of borrowing in the belief that inflation will not be persistent, but it has been over one per cent above its two per cent Consumer Prices Index (CPI) target for a year and in December it reached 3.7 per cent.

It is in this context that the one MPC member to vote for a rate rise in recent months, Andrew Sentence, has made a new call for a tightening of policy.

Speaking in London yesterday (January 24th), he said: “If we do not start to raise UK interest rates gradually soon, we risk having to do so more aggressively in the future – which could create a big shock to business and consumer confidence further down the track”.

While such a move may help curb CPI, it could have negative consequences for those struggling to pay their mortgages, for whom repossession may be more likely if a rate hike is passed on by lenders.

In recent months the consensus view in the MPC has been that the inflation rate is due to short-term shocks and it may be the body is prepared to carry on thinking this way, with any further rises blamed on the one-off effects of the VAT increase.

Mr Sentence has been on his own in calling for a change to this policy in recent months. But with the minutes of the January meeting due to be released tomorrow, it will soon become clear if any of his colleagues have joined him.

Whether enough will do so next month to change the rate remains to be seen.
By Amy White