Now we are six
We thought the minutes of the February Monetary Policy Committee (MPC) meeting might be interesting, and they are. Instead of two votes for a rate rise, there were three, with the Bank's chief economist, Spencer Dale, changing sides to support a quarter point increase. There left six who wanted to rates to stay the same.
A further twist was that the rate-riser in chief, Andrew Sentance, voted this time for a half point rise. With Adam Posen wanting even more quantitative easing to support the economy, we now have nine members of the committee and four different votes.
"Now I am six, I'm as clever as clever, so I think I'll be six now for ever and ever." That's what AA Milne wrote, but it's not what the financial markets expect.
The implication of last week's Inflation Report was that rate rises were coming this year - probably before the summer. On the basis of these minutes, some in the City are now expecting a rate rise as soon as next month.
Is that likely? The answer is it is certainly possible. According to the minutes:
"Most members agreed that the balance of risks to inflation in the medium term relative to the target had moved upwards in recent months and the case for withdrawing some of the current exceptionally accommodative monetary policy had consequently been strengthened.""Most", in this context, probably means everyone except Adam Posen.
Spencer Dale's move is not a big surprise. He's been voicing concern about the distorting effect of super-low rates for well over a year. The debate that matters now is the debate among the four Bank officials on the MPC who didn't vote for a change in policy - Mervyn King, Charlie Bean, Paul Tucker, and Paul Fisher - along with the other external member, David Miles.
According to the minutes, they have different views on whether the upside risks to inflation are likely to materialise.
Adam Posen is clearly one who thinks the risks are limited, "given that the change in the near-term outlook could clearly be explained by reference to recent increases in energy, other commodity and world export prices".
He argued yesterday, in a combative speech on the subject, that there was not much evidence that inflation expectations had risen a long way from their long-term average. And even if you expect inflation to rise, that doesn't necessarily mean you will be able to extract a larger wage rise from your employer to compensate.
But the language of the minutes here is very reminiscent of Mervyn King's comments on the subject. He is probably also in the sub-group that is relatively further from a rate rise.
On the basis of his recent speeches on the subject, I would guess that David Miles was in this category as well, but we might hear more from him on that subject in a speech later today.
That leaves Charlie Bean, Paul Tucker and Paul Fisher as, possibly, the members who did not vote for a rate rise but think "the case for an increase has nevertheless grown in strength".
My sense is that any or all of them could vote for a rate rise in the next few months - with Deputy Governor Bean perhaps the most likely to jump.
But there is a word of warning in here for those who now expect a rate rise next month. The minutes make clear that the members who did not vote for a change in February would like to wait "to see indicators of how the economy performed at the start of the year" to help assess whether the fall in the fourth quarter was a blip, or the start of something more serious.
Two weeks ago, they did not think we could say for sure whether the slowdown had continued in 2011. As the minutes suggest, the evidence before them was mixed.
True, there have been strong signs of life in the business sector, but household confidence has fallen sharply.
Will they have a much clearer sense of what's going on with the recovery in two weeks' time, when they gather around the table again? Some will say so. But, absent a major upward revision to that fourth quarter number for GDP on Friday, it's hard to see what could substantially strengthen the hawks' case between now and 9 March.
If we don't see a big change in that GDP number on Friday, my hunch is that most, if not all, of the MPC six will want to see data for the first three months of 2011 before making a move.
You might think they would leave the serious debate until May, when they will not only have the new Inflation Report forecasts in front of them, but the first estimate for growth in the first quarter as well.
Clearly, the chances of a rate rise before then have risen on the basis of these minutes. But remember, two members would need to change their minds. That is far from a done deal. "Clever as clever" they may be, and they could be six on the MPC for a few months' yet.