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Base rate rise tight call

The decision to raise interest rates in January was a tight call with members of the Monetary Policy Committee voting 5-4 to raise the base rate to 5.25%.

The minutes from the MPCs meeting show that BoE governor Mervyn King, John Gieve, Kate Barker, Tim Besley and Andrew Sentence voted in favour of a rate rise, while Rachel Lomax, Charlie Bean, David Blanchflower and Paul Tucker voted against.

Although the Committee noted that an immediate change in the base rate would surprise financial markets, which were largely expecting a raise in February at the earliest, it agreed that the balance of risks to the outlook for inflation had shifted upwards.

Interestingly, the minutes also state that although the MPC received advance notification of the December consumer price inflation release on the morning of their meeting, it had not been able to analyse in detail the reasons for the sharp increase in inflation to 3%.

During the meeting members debated whether inflation news was sufficient to warrant a base rate increase or whether it would be better to wait for Februarys inflation report.

The majority of members agreed that there was sufficient evidence to justify an increase in base rate and no compelling reason to delay.

For the remaining four, there was insufficient news to warrant am immediate increase in interest rates. They felt that although the upside risks had increased, the most likely prospect was that inflation would fall back later this year.


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So this week Mortgage Strategy asks: What does the increase in interest rates mean for you?

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