Rate rise: Not over till the last MPC member sings

23rd February 2011

Andrew Sentance, who has been long pushing for a rise, was joined by chief economist Spencer Dale, who along with Martin Weale voted for the quarter-point rise in interest rates at their meeting earlier this month.

The Guardian speculated that the hawkish voting pattern was a sign that policy could be tightened in the coming months if oil prices continue to soar as a result of Middle East unrest

"Given the potentially disruptive impact of reversing any immediate change in Bank Rate, there was merit in waiting to see indicators of how the economy performed at the start of the year to help assess whether or not the decline in GDP in the fourth quarter presaged sustained economic weakness. A rise at this juncture could damage household and consumer confidence, which remained fragile," the Bank of England MPC minutes say.

The American economist Adam Posen was reported in the MPC minutes as calling for an extension of the Bank's quantitative easing policy, to stave off a double-dip recession.

Simon Ward, chief economist at Henderson, said the odds had shortened on a March rate hike.

On his blog Ward says the February MPC minutes suggest that the bank rate will rise in two weeks' time if revised fourth-quarter GDP figures and purchasing managers' consumer surveys for February indicate that economic recovery is continuing.

2 thoughts on “Rate rise: Not over till the last MPC member sings”

  1. Anonymous says:

    Interesting, but I thought the Treasury already took all surpluses from the Fund and indemnified all losses. Also, the APF was heralded as a monetary operation pure and simple under the sole control of the MPC and would be reversed or extended to target the inflation brief. If it is now to be a clever bond market maneovre for fiscal gain wouldnt that compromise what nominal independence the MPC has ( and any future operations the MPC may undertake) and give oxygen to the allegation that the exercise was just a monetisation of debt for fiscal objectives.

    1. Simon Ward says:

      The Fund’s P&L will be included in the targeted public borrowing measure only on its closure, which could be 10+ years away. In the meantime, it is piling up net interest at £8 billion a year. Closing it down and bringing these receipts “on balance sheet” would make the borrowing measure a more accurate reflection of the true state of the public finances. The suggestion does not compromise the MPC’s independence because there are other ways of reversing the monetary impact of QE.

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