MPC vote fuels speculation that rates have peaked

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The Monetary Policy Committee voted unanimously to keep interest rates on hold at 6 per cent this month, fuelling speculation that rates have peaked. Minutes published yesterday showed the MPC voted 9-0, breaking the pattern of the last two months which saw the MPC split 5-4.

The Monetary Policy Committee voted unanimously to keep interest rates on hold at 6 per cent this month, fuelling speculation that rates have peaked. Minutes published yesterday showed the MPC voted 9-0, breaking the pattern of the last two months which saw the MPC split 5-4.

The minutes said: "The news on the month was on balance a little weaker." While there were rises in consumer lending, retail sales, employment and industrial production, the MPC focused on the recent slide in share prices, subdued pay figures and low inflation.

"It suggests the repo rate has peaked at 6 per cent," said Adam Law, UK economist at Barclays Capital.

Despite the unanimous vote, opinions on the committee were still divided, with some members saying that arguments remained for another rate hike.

Mr Law said the views of the "no change" camp were no longer fragmented and had hardened. The minutes showed mounting concern among the doves over the state of the world economy. "Instability in the oil market could persist and could be associated with equity market weakness," they said.

"Though the UK economy was well-placed to weather a further shock, confidence had already been shaken. The downside risk was larger than it had been a month ago."

The major issue was the labour market. The hawks doubted average earnings could remain subdued while the number of unemployed continued to fall. "Labour market conditions would need to be monitored very carefully for early signs of inflationary pressure," they said.

But the doves argued that the benign outlook may be permanent. "The labour market had been tight without generating inflationary pressure for sufficiently long that it was better to react when there was clear evidence that those risks were beginning to materialise," they said.

The dilemma was thrown into sharp relief by the fresh figures showing another sharp fall in unemployment without any acceleration in pay levels.

The number of people out of work and claiming benefit fell 16,400 to 1.035 million, the lowest since November 1979. Average earnings rose by 3.9 per cent in the year to August. This was the same as July and compared with a peak of 6 per cent in February. Economists said the figures showed little sign of inflationary pressure, but agreed the labour market was tight.

Unfilled vacancies at Jobcentres hit a record high of 338,000 last month - another sign of a skills shortage.

Cisco UK, the Internet company, has set up a network of 459 academies with 6,595 students to train people aged 12 to 55 in IT skills. Its managing director, Dick Gillespie, said Cisco and its client companies had noticed a growing shortage of skilled workers: "There's definitely an inflationary impact on the costs of this type of employee and that's another reason to tap these other untapped sources."

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