Second three way split on interest rates since 1997

According to the minutes of the latest Monetary Policy Committee meeting, which took place earlier this month, there was a three way split on which way interest rates should go, and this was only the second such division since 1997. With seven members of the MPC, including the governor of the Bank of England, Mervyn King, voting to keep the base rate on hold, interest rates remained static at 5%.

However, as a result of the slowing economy one member of the MPC, David Blanchflower voted for a cut in interest rates. The soaring level of inflation, which has reached 3.8%, which is nearly double the government’s target of 2%, resulted in another member, Tim Besley, voting for an increase in the base rate.

The decision on interest rate movement for July was clearly a difficult one the MPC members, who have to balance the state of the economy with movement in inflation levels. The minutes of the meeting read: ‘A rate change this month would be a surprise at a time when credit and other financial markets remained fragile, and any change in rates would be better communicated alongside the Bank’s August inflation report.’

Many now expect inflation levels to reach 4% and beyond by the end of the year, and industry officials are predicting that there will be no further interest rate cuts this year, and that there could even possibly be an increase in the base rate.