MPC wary of eurozone shocks, minutes suggest
The Bank of England’s Monetary Policy Committee (MPC) remains split on interest rates despite UK inflation remaining at a two-and-a-half-year high, as fears of a eurozone shock persist.
At the meeting earlier this month, the committee decided to keep the base rate at 0.5% – the historic low first set back in March 2009 – while also maintaining the quantitative easing (QE) programme at £200bn.
According to the minutes released today, only Spencer Dale and Martin Weale of the nine-man committee sought to increase rates, by 25 basis points.
They were the only hawks calling for a rate rise now that Andrew Sentance, who argued for an increase to 1% in his final month on the committee, has exited.
The committee left rates on hold even with inflation remaining at a two-and-a-half year high of 4.5% in May – more than twice the Bank of England’s target. The committee has yet to act to quash soaring prices, blaming the jump on external factors.
Explaining the decisions, the minutes say: “Most members judged it was appropriate to maintain the current stance of monetary policy at this meeting.
“The current weakness of demand growth was likely to persist for longer than previously thought. Moreover, the fiscal challenges in the euro-area periphery highlighted the potential for further adverse shocks to demand.”
The Bank’s monetary policy has continued to come under pressure with inflation holding steady at 4.5% in May, well above the government’s 2% target.
Former MPC member Sentance, who had been the earliest supporter of a hike in the interest rate, recently argued a higher exchange rate and lower export growth would be a price worth paying to prevent an inflationary spiral gripping the UK economy.
Meanwhile on quantitative easing, Adam Posen was the only member to vote for a £50bn increase to £250bn.