By Max Clarke
Minutes of February’s Monetary Policy Committee meeting have been published today, revealing a growing schism within the committee about the decision to raise interest rates.
For much of the historic 23 month period of 0.5% low interest rates, the committee has been unanimous in its decision to adhere to the depressed rate.
For February, however, the ratio was 6 in favour of the low rate to 3 against, with Andrew Sentance voting to raise the 0.5% by 50 basis points, while Spencer Dale and Martin Weale opted for a 25 point rise.
The likelihood of reaching up to 5% inflation in the near future is the cause of the schism, with Andrew Sentance long advocating a rise in order to curtail this figure, lowering it closer to the Bank of England’s 2% target.
David Kern, chief economist at the British Chambers of Commerce views the committee's increasing shift towards raising interest rates as worrying for business, saying:
David Kern, Chief Economist at the British Chambers of Commerce, said:
“These minutes point to an unwelcome shift towards a tighter monetary stance. On this occasion, three members voted for an immediate increase in interest rates and one of these supported an increase of 50bps. While the MPC is rightly worried about rising inflation and there is understandable concern that this will increase over the coming months, the factors pushing up prices in the short-term are outside the MPC’s control.
“Higher VAT, elevated commodity and energy prices, and increased utility rates are intensifying the squeeze on companies and individuals and will not be affected in the near term by higher interest rates. Our view remains that an early increase in rates, at a time when the government is tightening significantly fiscal policy, would increase the threat of derailing the recovery.”
The fragility of the recovery has prompted the MPC’s other members to avoid any premature rises- a decision supported by the UK’s business community.