MPC minutes reveal split on outlook as pound leaps on high street revival

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A major split within the Bank of England's Monetary Policy Committee emerged yesterday from the minutes of their meeting earlier this month.

A major split within the Bank of England's Monetary Policy Committee emerged yesterday from the minutes of their meeting earlier this month.

The nine-strong committee voted unanimously to keep the base rate on hold at 6 per cent on July 6. But the minutes showed some members thought rates were too high while others warned they could rise later this year.

A weak set of figures on the housing market, retail sales and pay levels persuaded the three hawks who voted for a hike in June to change sides. But the committee was split on the outlook going forward, dampening hopes that rates have definitely peaked. That view was further bolstered by separate figures showing a revival in high street sales last month.

The minutes revealed that some members - probably known doves DeAnne Julius and Sushil Wadhwani - believed there was little inflation in the economy. "It also appeared to some that the current monetary stance was slightly contractionary and that this might no longer be appropriate," the minutes read. Another group warned that further rate hikes might be needed later this year, pointing to inflationary pressure from the increase in public spending since announced by the Chancellor.

"Looking forward, given the likely increases in public spending over the next two years, private sector spending needed to slow further if the inflation target were to be met," the minutes said, adding that the MPC had been briefed ahead of Tuesday's Comprehensive Spending Review (CSR), which heralded £43bn of extra spending.

This group was widely believed to include Mervyn King and John Vickers. One independent analyst, Roy Attrill, research director at 4cast in London, said: "We could soon be in the position where we have voted for rate rises, steady policy and rates cut all at the same meeting."

The Conservatives seized on the reference to the impact of the CSR. Michael Portillo, the shadow Chancellor, said: "With the Government spending more, families' and individuals' spending will have to be squeezed, if inflation is to be kept on target."

The minutes had little effect on the markets, which had expected a unanimous vote, but data in Europe and the UK sent the pound to an eight-week high. Sterling posed its biggest one-day gain in a month against the euro after UK retail sales growth hit a five-month high. The pound rose, driving the euro as low as 61.46p, its lowest since May 25. High street sales rose 0.7 per cent in June, compared with 0.4 per cent in May and forecasts in the City of zero growth. This pushed the annual rate up to 4.5 per cent from 3.5 per cent.

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