One MPC member voted for 0.25% hike in base rate
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The minutes of June’s Monetary Policy Committee meeting reveal that one member voted in favour of raising the Bank of England base rate by 0.25%.
This is the first time a member has voted to increase rates since August 2008.
The base rate has now been kept on hold at 0.5% for 15 months. Seven members of the committee voted for another hold but Andrew Sentance expressed a preference for a rise.
He argues that the persistence of inflation casts doubt on the Bank’s prediction that spare capacity in the economy will be enough to slow rising prices.
Vicky Redwood, senior economist at Capital Economics, says Sentance’s vote to raise rates was unexpected but did not come as a total surprise.
She says: “Admittedly, some other members also thought the balance of risk with regard to inflation had moved to the upside but others thought recent market developments meant risk had shifted to the downside.
“And news since the meeting should have calmed inflation nerves somewhat. For a start, the Consumer Price Index fell from 3.7% to 3.4% in May. Also, the fact that the VAT rise is being delayed until next year avoids a further spike in prices in the near term, thus reducing the risk of a significant rise in inflation expectations.”
But Douglas McWilliams, chief executive of the Centre for Economics and Business Research, says it expects the base rate will be stable until the end of 2012.
He adds: “We also expect mortgage rates to fall to around 3% by early next year.”
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