Interest rates remain at 0.5%

10 March 2011

The Bank of England (BoE) ignored market pressure for a hike in the base rate today and kept it anchored at 0.5% for the 24th consecutive month.

Governor Mervyn King and the rest of the Monetary Policy Committee (MPC) also voted to maintain quantitative easing at its current level.

In recent weeks some committee members have spoken in a tone that indicated the MPC was edging closer to an interest rate rise.

Persistently high inflation has been the most significant factor for those who think the time is right for a policy change.

Renowned hawk on the committee, Andrew Sentence, last month voted for a rate rise of 50 basis points, while internal member and chief economist of the Bank of England Spencer Dale joined Martin Weale to call for a 25 basis point increase.

The break-down of today's vote will not be known for another two weeks, but all eyes will be on deputy governor of the Bank of England Charlie Bean who earlier in the month appeared to be veering towards the hawk's case.

Much of the discussion in previous meetings has surrounded the inflation rate, which is currently well above the target rate of 2%, and whether inflationary pressures are temporary or more structural.

Doves such as King have argued that inflation will calm once oil prices return to more typical levels and when the VAT rise implemented at the start of 2011 has been absorbed.

The Sentence camp counter this with concerns that inflation will become imbedded if wage settlements start to jump because consumers have lost faith in the BoE to return inflation to its target level.

This article was written for Interactive Investor

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