By Max Clarke

Meetings of the monthly meeting of the Monetary Policy Committee were published today, and show signs of a schism emergins in the committee between advocates of maintaining low interest rates in order to promote economic growth, and those advocating a rise in rates in order to stem high levels of inflation.

The full range of topics discussed by the Committee were; financial market developments; the international economy; money, credit, demand and output; and supply, costs and
prices.

Commenting on today's minutes are David Kern, Chief Economist at the British Chambers of Commerce (BCC); and Jeremy Cook, chief economist at World First.

David Kern:

“These minutes signal an unwelcome shift towards a tougher monetary stance. On this occasion, two members, rather than one, voted in favour of an immediate increase in interest rates. But the economic background has changed significantly for the worse since the meeting took place with a worrying decline in GDP in the fourth quarter of last year. Our view remains that an early increase in interest rates would be a major mistake which would increase the threat of derailing the recovery.

“While the MPC is rightly concerned about rising inflation, the factors pushing up prices are outside their control. Higher VAT, elevated energy and commodity prices, and increased utility rates would not be affected by higher interest rates. These factors increase the squeeze on business profit margins and on consumer’s disposable incomes.

“British businesses need a prolonged period of low interest rates to cope with the pressures resulting from the implementation of the government’s deficit cutting programme. But it is important that the recovery is not threatened. If the economy weakens the MPC must be prepared to consider a further increase in its quantitative easing programme.”

Jeremy Cook:

“Just looking through the Bank of England’s meeting notes and you have to take these minutes with a massive pinch of salt after yesterday’s GDP figure.

“However it does confirm the tone of the Governor’s speech last night that the Bank is seemingly more focused on price levels than growth at the moment…”

Full minutes of the January 2011 Monetary Policy Committee are available on the Bank of England's website

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