Economic growth for the second quarter was revised up to its highest level for almost two years, according to figures published yesterday. Meanwhile it emerged that only the two known "doves" on the Monetary Policy Committee voted against the surprise quarter-point rate rise a fortnight ago.
GDP growth for the second quarter was revised up from 0.5 to 0.6 per cent - the highest since the third quarter of 1997 when it grew 1.0 per cent. Growth in the first quarter was revised up to 0.2 per cent.
The main reason was an upward revision to services sector growth, while the data confirmed that manufacturers achieved growth for the first time in a year.
The minutes of the MPC meeting two weeks ago showed the vast majority backed the hawks to vote through a quarter-point hike. They cited the strength of the domestic consumer, housing and labour markets and global commodity prices.
The minutes showed the Bank believes the UK is in the grip of a nationwide house price boom. "It is no longer correct to describe the rise as being accounted for by a few isolated hotspots," the minutes said.
The committee was worried about the domestic economy, saying that the 4.5 per cent growth in domestic demand was "unsustainable".
"There was an argument for an early increase in rates because there was merit in seeking to adjust expectation now rather than later, when more might otherwise need to be done to have the same effect in slowing domestic demand in order to achieve the inflation target."
One member argued for a smaller rate rise than 0.25 per cent but ended up voting with the majority, while two members, DeAnne Julius and Sushil Wadhwani, voted for no change. Both had already made their positions clear in recent speeches and analysts said the size of the majority showed more hikes were on the cards.
Jonathan Loynes, of HSBC, said: "The factors cited as justification for the hike - strong consumption, housing, wages - will remain in place over the coming months, if not grow stronger."
Nick Stamenkovic, of IDEAglobal.com, added: "The doves are fighting a losing battle and a hike is inevitable." The pound hit $1.6394, up 0.75 cents, its highest since 7 May.
DeAnne Julius said the hike was "premature" as it could drive up the pound and damage the recovery in growth. Sushil Wadhwani appealed to the MPC to "give growth a chance" - which is fast becoming his catchphrase - and sterling might stay stronger than the Bank expected. The hawks accepted that the rise carried "some risks" of damaging consumer and business confidence, particularly as it was not expected by the markets.
The British Chambers of Commerce backed the two dissidents: "We stand full square behind the doves. This and any further rises in interest rates can only harm the UK's quest for steady sustainable growth."
Meanwhile, John Vickers, the Bank's chief economist and a member of the MPC, yesterday said that the Bank was aware of the "sharp" rises on the housing and stock markets but was not targeting asset prices in its interest rate policy.Reuse content