Fresh attack on Bank hawk after MPC's King votes for rate rise

Mervyn King's reputation as a hawk was reinforced yesterday after it emerged that the Deputy Governor of the Bank of England was the only member of the Monetary Policy Committee to vote in favour of a rise in interest rates earlier this month.

The MPC voted seven to one to keep the cost of borrowing on hold at 4 per cent, according to the minutes of its last meeting held a fortnight ago. City economists said this made it more likely that the Bank would leave rates unchanged again at its next meeting in July.

Despite the evidence of the minutes, David Laws, the Liberal Democrat member of the Commons Treasury Select Committee who last week accused Mr King of moderating his hawkish stance in order to land the top job when the Bank's Governor, Sir Edward George, retires next year, refused to apologise. Instead, Mr Laws attacked Mr King on a new front by claiming that he was misrepresenting the views of the rest of the MPC. Mr Laws said he was concerned that Mr King was in danger of reflecting his own view that rates needed to rise rather than the majority view of the committee.

In particular, Mr Laws chose to highlight Mr King's comments at the press conference to launch the Bank's last inflation report, at which he said it "stands ready to counter building inflationary pressures" in the economy. Mr Laws said yesterday: "There's an argument that it should be the Governor who presents the press conference as he is more representative of the consensus view on the MPC."

Mr King, who told Mr Laws he looked forward to an apology from the MP one day after his remarks at the select committee, refused to be drawn into the latest row.

However, it was pointed out that at the same hearing Mr King's impartiality and objectivity had been strongly defended by two of the MPC's four external members, Kate Barker and Stephen Nickell.

According to the minutes of this month's rate-setting meeting, the MPC felt the arguments for and against a rate rise were "finely balanced". The minutes say: "Most members felt that, given the outlook for inflation, it was not yet necessary to increase interest rates."

Figures released earlier this week showed that the underlying rate of inflation fell to a record low of 1.8 per cent in May against the 2.5 per cent figure targeted by the MPC.

However, the latest minutes also noted the recent fall in the value of sterling against the euro, the stronger than expected consumer demand and house price inflation, saying these developments "brought forward the time at which an increase in interest rates would be required".

George Buckley, of Deutsche Bank, said: "I would not be at all surprised if we had to wait for August for a rate rise."

In a speech in the Midlands, the MPC's Mr Nickell said there was no need for a rate rise simply to cool the housing market when economic recovery remained "fragile and uncertain". However, he said the Bank should act if the impact of rising house prices on demand was likely to push inflation above its 2.5 per cent target.