Fears Heightened on Interest Rate Rise

by Gill Montia

Story link: Fears Heightened on Interest Rate Rise

Fears of a further interest rate rise have been heightened by the revelation that the recent decision by the Bank of England to hold rates was decided by just one vote.

The Monetary Policy Committee, which comprises nine members, voted by five votes to four to keep rates at 5.5%. At the time, analysts held a consensus that the outcome would be a vote of seven to two in favour of no change, and today’s news means that a July increase is more than likely. Mervyn King, the bank’s Governor, was amongst those who voted in favour of a rise. It was, in fact, the first occasion on which he had been outvoted since August 2005.

Despite four interest rate rises since summer 2006, the economy is still growing strongly, however those opposing a June rise argued that putting up rates for the second successive month could act as a threat to growth. Some members of the committee judged that insufficient time had elapsed to assess the impact of previous rate increases, but is unlikely that this group will once again win the day when rates are next reviewed.