The stalemate between the Bank of England's leading hawk and dove continued yesterday as its Monetary Policy Committee (MPC) left interest rates on hold for the 20th consecutive month but also declined to extend its programme of "quantitative easing" – colloquially, printing money.
Andrew Sentance has repeatedly voted for a 0.25 per cent rise in base rates from the current 0.5 per cent, to combat inflation, which currently stands at just over 3 per cent – well above the Government's 2 per cent target and higher than in many other developed countries.
By contrast, Adam Posen called last month for an increase in the quantitative easing programme, which has already seen £200bn pumped into Britain's faltering economy, to keep the recovery on track and reduce the risk that Britain will have to endure a "lost decade", as Japan did in the 1990s.
Howard Archer, chief economist at IHS Global Insight, said he believed the committee's failure to move in either direction "masks a three-way split within the MPC".
He said: "We suspect that most MPC members felt that the economic slowdown was not yet marked enough to warrant further quantitative easing, especially given ongoing sticky, persistently above-target consumer price inflation."
However, he believes that the MPC, apart from Mr Sentance, felt that muted recovery and "serious downside risks" to growth also meant that now is not the right time to be thinking of raising interest rates.
This view was borne out by the National Institute of Economic and Social Research, which fears UK growth in the third quarter fell to 0.5 per cent, less than half the 1.2 per cent in the unusually strong second.Reuse content