MPC decision throws open rate question

A second member of the Bank of England's Monetary Policy Committee (MPC) has backed a rate rise, minutes of the January meeting have revealed.

A second member of the Bank of England's Monetary Policy Committee (MPC) has backed a rate rise, minutes of the January meeting have revealed.

This week's news that the economy shrank in the final quarter of 2010 – albeit mainly for reasons the Office for National Statistics said were related to December's severe weather – may have been assumed to have put paid to any thoughts of a rate hike soon.

But while Royal London Asset Management economist Ian Kernohan and Trevor Greetham of asset managers Fidelity international were among those saying the situation showed a rate rise was still some way off, the minutes published yesterday (January 26th) may reopen the question.

The document revealed the MPC could see clearly enough that there have been plenty of factors at work that may push up inflation – "upside risks" to use their jargon. And while it was known from the time of the decision that the majority voted to keep things as they were, it may be very significant that Martin Weale has switched sides and joined inflation hawk Andrew Sentance.

A rate rise could help some and harm others. Those whose debt problems are being made worse by rising prices should benefit from these being curbed, but people at risk of repossession might be tipped over the edge by more expensive mortgage payments.

Mr Sentance repeated his call for a tightening of monetary policy in a speech this week, a comment which itself came before the apparently game-changing news of the economic contraction emerged. Only time will tell whether this will stop the inflation hawks' bandwagon in its tracks.

By Amy White
 

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