A Close Shave For Interest Rates

Filed Under Finance

The Bank of England’s Monetary Policy Committee, which sets the base rate, have released the minutes of their last meeting and they show that one of their members voted for a 0.25% increase in the rate.

So the decision to keep the base rate at 0.5% for the fifteenth consecutive month wasn’t unanimous. Luckily the lone voice to increase rates was countered by seven other members who voted to keep the rate at 0.5%.

The minutes doesn’t make it clear why Andrew Sentance thought the base rate should rise, but there is mention of one member thinking that inflation had been more resilient during this recession than in previous downturns and that it might not fall as fast as the rest of the MPC predicted.

He may also be concerned that the rise in VAT could also drive inflation to higher levels next year and that brakes should start to be applied now via a small rise in interest rates.

One loan voice, in a panel of eight, is not a cause for concern, but if oil prices start to rise again (which the MPC has identified as the main cause for rising inflation) and inflation does not start to fall back soon, he may well be joined by other members of the MPC, which could lead to a rise in the base rate sooner than most people think.