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MPC in wait-and-see mode over base rate but Sentance rebels for third time

Minutes from the Monetary Policy Committee’s August meeting show rate rebel Andrew Sentance once again voted for a 0.25% rise.

It is the third month in a row that Sentance has voted to increase the base rate but all other members voted for no change, including new member Martin Weale who boosted the MPC’s membership back up to nine after two months at eight.

On the subject of quantitative easing – which remained at £200bn after the last meeting – the MPC says it is ready to respond in either direction to changes in the market.

Vicky Redwood, senior econo-mist at Capital Economics, says: “The minutes show that the MPC is still in wait-and-see mode, with most members unconvinced by the case to tighten or loosen policy.

“In our view, further quantitative easing is likely and rates are unlikely to rise any time soon.”

It was also revealed last week that the Consumer Price Index has slowed to 3.1% in July, down by 0.1% compared with June. It is the third month in a row the CPI has dropped but it still remains above the bank of England’s target of 2%. The Retail Prices Index also slowed to 4.8% from 5% in June.

In his letter to chancellor George Osborne explaining why inflation had missed its target, Bank of Eng-land governor Mervyn King says that much of the current high level of inflation can be attributed to the increase in VAT in January, past rises in oil prices and the continued higher import prices.

He says: “The MPC’s judgement remains that these effects will prove to have a temporary impact on infla-tion and are masking the downward pressure on inflation from spare capacity in companies and the labour market.”

Scott Corfe, economist at the Centre for Economic and Business Research, says: “While overall consumer price inflation fell from 3.2% in June to 3.1% in July, the rate of inflation excluding indirect taxes such as VAT fell from 1.6% to 1.4% – well below the Bank’s 2% target.

“The difference between these measures outlines the extent to which VAT and duty rises have hit consumer spending this year.”

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