Bank of England unanimous over keeping rates on hold

Image caption,
Mervyn King has backed the government's debt reduction plans

The Bank of England's Monetary Policy Committee (MPC) was unanimous in its decision to keep interest rates on hold at 0.5% in May, minutes have shown.

The MPC said that while the UK economy was performing as expected, uncertainty had been caused by the impact of public debt problems in the eurozone area.

It said inflation was rising, but under control. Yet it noted some members had more inflation fears than others.

The MPC made its latest rates decision on 10 May.

The meeting took place after the general election, but before the coalition government was formed.

The Bank's governor, Mervyn King, has since backed the new government's deficit reduction plans.

Growing inflation

The MPC's nine members all voted to keep interest rates on hold at 0.5%, where they have been since March 2009.

They also decided not to pump any more money into the UK economy under the Bank's policy of quantitative easing.

The minutes noted that inflation was now rising, but that the MPC generally considered there was enough "spare capacity" in the economy - additional potential economic growth - to keep it under control.

However, the MPC admitted that there was a "range of views" on this, suggesting some of its members were more concerned about rising inflation than others.

The most recent official figures - released on 18 May - showed that UK inflation hit a 17-month high in April.

On the Consumer Prices Index (CPI) measure, inflation hit 3.7% - well above the target of 2% and the highest rate since November 2008.

On the Retail Prices Index (RPI) measure, which includes housing costs, inflation was up to 5.3% - its highest rate in 19 years.

"There are lots of different issues, but the most important is inflation and spare capacity," said analyst George Buckley of Deutsche Bank.

"Some members of the MPC are concerned that spare capacity is not going to be as big a drag on inflation as they thought."

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