Bank of England ignores lone voice calling for rate rise

The Bank of England’s rate setting committee considered a small increase in the base interest rate at its latest meeting, but all but one member eventually voted for rates to remain on hold.

A rise in rates, which only drew Andrew Sentance’s vote at the early August meeting of the Monetary Policy Committee, was considered in light of strengthening economic activity and consistently above target inflation, which will be exacerbated by the January VAT rise.

The committee decided that inflation will return to target in the medium term, when temporary pressures wear off. 'The weight of evidence continued to suggest that the margin of spare capacity was likely to bear down on inflation and bring it back to target in the medium term once the impact of temporary factors had worn off,' it stated.

The bank also decided to hold off from more quantitative easing, the process in which the central bank buys back gilts from banks to help increase the amount of money they can lend. However, the minutes state that the risks to inflation are ‘substantial’ and ‘members stood ready to respond in either direction as the balance of risks evolved’.

Sentance, who has called for a 25 base point hike for three months now, argued that economic conditions had improved enough over the past year and the second quarter GDP figure – which showed a surprise 1.1% leap in economic growth – showed the recovery was gathering momentum. He also pointed to strength in the manufacturing sector and persistent inflation. Consumer prices inflation now stands at 3.1%, while the retail prices index is at 4.8%.