Three Bank of England policymakers vote for rate rise

The Bank of England The bank's policymakers face a 'real dilemma' on rates its deputy governor said

Another Bank of England policymaker has voted for an interest rate rise - suggesting rates could be raised sooner rather than later.

Spencer Dale has joined Andrew Sentance and Martin Weale in backing a rise, minutes of February's Monetary Policy Committee (MPC) meeting show.

The remaining six MPC members voted to keep rates at historic 0.5% lows.

Worries are growing about the recent pick-up in inflation, boosted by rising commodity prices and the VAT increase.

The Consumer Prices Index rose at an annual rate of 4% in January, twice the Bank of England's official target.

Sterling climbed against the dollar after the MPC minutes were released, with the pound hitting $1.627, its highest level of 2011, as the prospect of a rate rise became more likely.

'Unwelcome'

The extra support for a rate rise highlights the increasing disagreement among the MPC.

Mr Dale and Mr Weale voted to raise rates to 0.75% while Mr Sentance called for rates to increase to 1%.

Start Quote

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.”

End Quote

And the minutes also suggested that those who had opposed a hike in rates this month would consider a change in stance if the UK's GDP figures suggested that the economy had picked up at the start of the year.

The initial data suggested GDP fell by 0.5% between October and December - though much of this was attributed to the impact of the snow and frozen weather at the end of the year.

Meanwhile MPC member, Adam Posen again voted to increase the programme of injecting money into the economy, known as quantitative easing, from £200bn to £250bn.

The British Chambers of Commerce said the apparent shift towards raising rates was "unwelcome" and that such a step, at a time when the government was slashing spending, "would increase the threat of derailing the recovery".

How members voted on interest rates*

MPC Member Dec 2010 Jan 2011 Feb 2011

Source: Bank of England

* Rate currently 0.5%

Mervyn King (Governor)

No change

No change

No change

Paul Tucker (Dep Governor)

No change

No change

No change

Charles Bean (Dep Governor)

No change

No change

No change

Spencer Dale

No change

No change

Raise to 0.75%

Paul Fisher

No change

No change

No change

David Miles

No change

No change

No change

Adam Posen

No change

No change

No change

Andrew Sentance

Raise to 0.75%

Raise to 0.75%

Raise to 1%

Martin Weale

No change

Raise to 0.75%

Raise to 0.75%

The increase in the VAT rate and higher fuel, energy and other commodity prices, which are largely due to international factors, would not be affected in the short term by rate rises, the BCC's chief economist David Kern added.

"Since there is no evidence that inflationary expectations are increasing and wage pressures are still modest, we believe that there is no need for the MPC to react immediately.

"While we accept that interest rates will have to increase later in the year, we believe the MPC should wait until the economy has absorbed the initial impact of the Government's deficit cutting plan."

'Delicate balance'

The Bank's deputy governor Paul Tucker made a rare public statement on monetary policy on Tuesday, saying the MPC faced a "real dilemma" over whether to raise interest rates in the next few months.

"Our job is to bring inflation back to the 2% target. That's going to take us a little while and it means that we face a real dilemma in what to do about interest rates over the next few months," Mr Tucker told BBC Radio Bristol.

"The question we face isn't to make a violent increase in interest rates, it's whether or not to take away just a little bit of the stimulus that we've been applying to the economy over the last few years. This is a delicate balance."

Jeremy Cook: 'We believe there will be an interest rate rise in August'

On Monday, Mr Weale said that while inflation had been boosted in recent months by temporary factors, he was concerned that this could feed into people's expectations about future inflation, making price rises self-perpetuating.

"If businesses and people bargaining for wages expect high rates of inflation then there's a risk that they may build those expectations into their current behaviour," he told BBC Radio 4's World at One programme.

However, Mr Posen has downplayed the risks from inflation. This week he told Oxford economists: "We must make policy based on the best available forecast... and not be tyrannised by popular fears or spectres of (inflation) expectations."

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