The minutes of the Monetary Policy Committee's discussion in November caused some City experts almost as much surprise as the quarter-point rate rise that followed the meeting. For widespread rumours of a vote split between inflation hawks and doves turned out to be false.
What's more, the minutes made it clear that the committee had left the door open to further rate increases. There remains a clear possibility of another move in the new year.
Kevin Gardiner, an economist at investment bank Morgan Stanley who is predicting at least one more step up in the cost of borrowing, said: "The fact that the decision was unanimous suggests the committee members felt the case was clear cut."
The minutes set out three possible scenarios for the economy. One placed more weight on recent signs that growth has peaked, but the other two indicated a need for immediate action to keep inflation on target.
In the first case, this would be an insurance policy against the danger that the effect of the strong pound on exports not being enough to slow growth to a sustainable pace. In the other, a rate increase was definitely necessary because of evidence of over-strong growth and a tight labour market.
In support of the latter case, the minutes listed all the signs that growth and inflation had turned out higher than expected during the previous few months. In particular, the lack of spare capacity, recruitment difficulties and rapid broad money growth weighed in favour of this interpretation.
Although agreeing that there was a lot of uncertainty about inflation prospects, the committee members therefore agreed on an immediate quarter point rise. The minutes said: "A policy tightening would bring output back to its trend level more quickly, and if necessary interest rates could be cut if new evidence emerged that the economy was weaker than expected."
They also stressed the danger of not acting at once: "If, on the other hand, policy was not tightened, there was a risk that inflation expectations would rise as strong demand pressures persisted. The committee might then find itself having to tighten sharply, increasing the risk of a recession, to bring things back on course."
As a matter of tactics, the committee also favoured raising rates before the publication of figures expected to show a rebound in retail sales and disappointing retail price inflation. Delaying until afterwards would make it look as if the Bank was reacting too late to bad news.
Simon Briscoe, an economist at Nikko Europe who criticised last month's move as unnecessary, said yesterday: "In the face of uncertainty, the Bank assumes the worst." He said no further action was now needed.
Mr Gardiner, on the other hand, said: "The Bank will raise rates if pay settlements accelerate in the New Year, even if growth slows. And I don't think growth is going to slow all that fast."
John O'Sullivan, an economist with NatWest Markets, pointed out that the fact that the vote was unanimous did not mean there were no dissenters on the panel.Reuse content