Bank of England still divided over interest rate rise

The latest interviews with members of the Monetary Policy Committee (MPC) indicate that there is still no consensus on whether to raise interest rates, despite the looming vote on the issue which will take place next week.

At least two members of the committee are known to be strongly in favour of a rise in interest rates. 

Speaking to the Times, Michael Saunders, who is an external member of the MPC, said that the Bank was overstimulating the economy with rates at 0.25 per cent and £375 billion of quantitative easing.

Both he and Ian McCafferty voted to raise rates to 0.50% at last month’s meeting, which resulted in a 5-3 split in favour of keeping rates as they are.  However, since last month one committee member has left and Andy Haldane, chief economist at the Bank of England, has muted that he may now back a rate rise.  Governor Mark Carney, has also suggested that a rate rise could ‘become necessary’, according to the Times.

MPC member Gertjan Vlieghe, however, has openly stated that it would be a mistake to raise interest rates now, revealing to a sharp divide in opinion within the committee. 

Speaking to the Independent, he said: “This is an environment where a premature hike would be a bigger mistake than one that turns out to be slightly late.

“I think the consumption slowdown is here, it’s not over. I don’t think there’s going to be a sufficient offset from investment and net exports to compensate for that.”

 

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