The three-way split within the Bank of England's Monetary Policy Committee continued at its meeting earlier this month, when it voted 8-1 in favour of leaving interest rates unchanged. According to the latest minutes, arguments were aired in favour of a further boost to the economy, for a modest rise in rates, and for no change. In the event, only Andrew Sentence, an external member of the MPC, dissented and voted for an increase in the Bank rate.
Mr Sentence has been a consistent "hawk" on the panel, voting against the mainstream since June. His apparently lonely mission to change the rest of the MPC's minds is reminiscent of David Blanchflower's isolated pleading with colleagues to cut rates in the autumn of 2008. The minutes say Mr Sentance felt that "the inflation outlook had shifted sufficiently to justify beginning to raise rates gradually" and the MPC acknowledged the danger that "there was a risk of inflation expectations becoming de-anchored".
"If some households and firms placed weight on past inflation outcomes, then inflation expectations might already have begun to rise," it added. The Bank's chief economist, Spencer Dale, told The Independent last month: "Now, we can come up with all sorts of clever reasons to explain our view, but at some point people will say 'inflation just seems to be higher than it used to be' and that is a very substantial risk."
Against that, another member – possibly David Miles, who is often regarded as a "dove" – said that "credit conditions seemed set to remain somewhat tighter for longer than expected... There was a risk that the level of demand would be inadequate relative to supply" and wanted more quantitative easing (QE) – the direct injection of money into the economy.
Echoing the Bank's quarterly inflation report and the Governor's letter to the Chancellor this week, the MPC consensus was that the risks were too balanced to justify a move. The Bank rate has stood at its 315-year low of 0.5 per cent since last March, and QE has not been adjusted since last November.Reuse content