Bank of England majority firm on keeping rate low
Wednesday, April 20, 2011
LONDON (AP) — The Bank of England’s rate-setting Monetary Policy Committee saw no new votes for a rate hike at its April meeting despite concerns about inflation, according to minutes of the discussions released Wednesday.
Andrew Sentance, Spencer Dale and Martin Weale again voted for a rate increase but picked up no new support from the other six members.
Of the six who voted to keep rates unchanged, Adam Posen remained alone in seeking to restart the Bank’s economic stimulus program through another 50 billion pounds ($80 billion) in asset purchases.
The Bank has kept the interest rate at 0.5 percent since March 2009, and the quantitative easing program has been on hold since it reached 200 billion pounds in November 2009.
In making its decision, the MPC had advance notice that consumer price inflation had eased from an annual rate of 4.4 percent in February to 4.0 percent in March. The lower March rated dampened market expectations of a rate hike as early as May.
“A May hike is not completely out of the question, given that the MPC will be reviewing its forecasts in the upcoming inflation report,” said Vicky Redwood, senior U.K. economist at Capital Economics.
“However, assuming that the activity data maintains its recent weaker tone, we still think that a near-term rate hike will just about be avoided.”
The majority of the MPC judged that wage growth was still slow, suggesting they do not yet fear that higher consumer prices are creating an inflation spiral by pushing up pay.
A 0.5 percent economic contraction in the fourth quarter of last year was also still on most of the MPC members’ minds as evidence that Britain’s recovery from a deep recession remains fragile.
“It was still too early to know whether the slowdown in growth towards the end of 2010 had been temporary, or whether the weakness in the contemporary indicators of household spending heralded a more protracted weakness in consumption growth,” the minutes said.
The committee noted that manufacturing output had increased in the December-February period, but consumer spending had been weak. It was uncertain whether the softening in spending was a temporary response to the rise in sales tax in January, or a longer-term adjustment, the minutes said.
At the April MPC meeting, Sentance voted to raise the base rate half a point to 1 percent, while Dale and Weale voted for a quarter-point hike. Sentance’s term on the MPC will end after next month’s meeting.
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