Bank of England minutes released today, for the MPC meeting on the 12th and 13th January 2011, continue to reveal that the majority of members on the Committee believe that the base rate should remain on hold at 0.5%.
Six members of the Committee voted in favour of keeping interest rates on hold. Martin Weale joined Andrew Sentence in favour of increasing the Bank Rate by 25 basis points, while Adam Posen continued to vote in favour of increasing the size of the Bank of England's asset purchase programme ("quantitative easing") by £50 billion.
The release of the minutes comes a day after preliminary estimates of growth in the fourth quarter of 2010 showed a 0.5% quarter-on-quarter contraction in the UK economy. Even if the effects of the snow on growth are excluded, the data point to zero growth, suggesting the recovery lost all momentum at the end of 2010.
The release also comes a day after Bank of England Governor Mervyn King delivered a sombre speech in Newcastle, which explained how UK households are currently going through the longest fall in real incomes since the 1920s and that there is very little policymakers can do to rectify this in the short-term.
With respect to inflation, the minutes released today suggest the majority view within the MPC remains that price growth is being largely driven by short-term and external factors - VAT rises and short-term commodity price shocks - rather than an overheating economy. This suggests there is limited taste for a rate rise within the MPC, despite December's surprisingly high annual consumer price index (CPI) inflation rate of 3.7%.
Although the minutes show the number of MPC members voting in favour of a rate rise increasing from one to two, the vote was undertaken before members knew how bad economic growth in Q4 2010 would be.
Renewed concerns about the state of the UK economy should now keep further rate-risers at bay. Indeed, we anticipate a renewed focus by policymakers on "going for growth", and would not rule out further quantitative easing by the Bank of England this summer.
The release of the minutes comes a day after preliminary estimates of growth in the fourth quarter of 2010 showed a 0.5% quarter-on-quarter contraction in the UK economy. Even if the effects of the snow on growth are excluded, the data point to zero growth, suggesting the recovery lost all momentum at the end of 2010.
The release also comes a day after Bank of England Governor Mervyn King delivered a sombre speech in Newcastle, which explained how UK households are currently going through the longest fall in real incomes since the 1920s and that there is very little policymakers can do to rectify this in the short-term.
With respect to inflation, the minutes released today suggest the majority view within the MPC remains that price growth is being largely driven by short-term and external factors - VAT rises and short-term commodity price shocks - rather than an overheating economy. This suggests there is limited taste for a rate rise within the MPC, despite December's surprisingly high annual consumer price index (CPI) inflation rate of 3.7%.
Although the minutes show the number of MPC members voting in favour of a rate rise increasing from one to two, the vote was undertaken before members knew how bad economic growth in Q4 2010 would be.
Renewed concerns about the state of the UK economy should now keep further rate-risers at bay. Indeed, we anticipate a renewed focus by policymakers on "going for growth", and would not rule out further quantitative easing by the Bank of England this summer.
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