Too early to agree rate hike, says MPC

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Policymakers at the Bank of England resisted raising interest rates earlier this month as it was too early to say whether the UK's economic recovery was secure, it emerged today.

Minutes of the Bank's monetary policy committee (MPC) showed members voted six to three in favour of holding rates at their historic low of 0.5%, after surveys showed mixed data for the economy.

The minutes said that while it was likely the economy would recover from its recent "soft patch", consumption growth was likely to remain weak for some time.

There was still uncertainty over the near-term economic outlook, heightened by the impact of the royal wedding and the Japanese earthquake and tsunami, which were likely to add some volatility to quarterly GDP in the coming quarters.

The six members who decided against a rate rise said such a move could further hit consumer confidence. The Bank's decision was made before official figures yesterday revealed the CPI measure of inflation rose to 4.5% in April, its highest level in more than two years.

The voting position of the nine-strong committee remained unchanged this month, with Andrew Sentance in favour of a 0.5% increase during his last meeting on the committee. Martin Weale and Spencer Dale backed a 0.25% rise and Adam Posen reiterated his call for a second bout of quantitative easing.

The policymakers in favour of a rate hike said it was unlikely that the uncertainty over the strength of the recovery in demand would be resolved soon, so there was little benefit from waiting to hike rates.

Howard Archer, chief economist at IHS Global Insight, said the Bank was in no hurry to raise interest rates due to the damaging effect it could have on consumer confidence.

He said: "The general impression we get from the minutes and the recent inflation report is that the Bank of England is most likely to start raising interest rates gradually in November."

He added that the dynamics within the committee are about to change as "arch hawk" Mr Sentance, who has repeatedly called for interest rate rises, is replaced by former Goldman Sachs economist Ben Broadbent, who has indicated that he is broadly in favour of the MPC's decisions to date.

David Kern, chief economist at the British Chambers of Commerce, called on the Bank to hold its nerve and postpone interest rates until the recovery is more secure.

He said: "The tough austerity measures that are being implemented will inevitably reduce demand in the economy over the coming months.

"Disposable incomes will be squeezed, and businesses and individuals will feel the pinch."