MPC minutes reveal rift

by Gill Montia

Story link: MPC minutes reveal rift

The recently published minutes of the July meeting of the Monetary Policy Committee (MPC) show signs of a rift between policymakers at the Bank of England, who are disagreeing about the economic outlook for the UK.

The MPC voted six to three in favour of the July rise in the base rate, from 5.5% to 5.75%, in a move that was a victory for the bank’s governor, Mervyn King, who had argued for an increase a month earlier, in June.

Two members of the MPC who opposed an increase in June supported Mervyn King in July together with the three other members of the committee who had voted for but failed to carry through a June rise.

However, at the July committee meeting Mr King was once again opposed by the bank’s Deputy Governor, Rachel Lomax, who stood firm with two of the most respected members of the MPC in opposing the July base rate increase.

Some financial analysts believe that there are now as many as four camps within the MPC, including a group very strongly in favour of interest rate rises.

At least one more increase is expected this year and August’s inflation report is awaited anxiously by many because it should reveal a fuller picture of the impact on the economy of earlier base rate rises and the need for further action.

Whilst there are grounds to suspect a level of uncertainly amongst MPC policymakers, the contents of the next inflation report are expected to shape the short term outlook.