Dissension at bank of England over outlook for inflation
Division as one member calls for an increase in base rate
Minutes of the latest Bank of England policy meeting released yesterday revealed a division among members on the inflation outlook and one dissenter against keeping the base rate at an all-time low.
One member of the Monetary Policy Committee (MPC), Andrew Sentance, wanted to raise the base rate from its current 0.5pc to 0.75pc, according to minutes from the June 9-10 meeting. Other members voted to keep the rate where it was.
The MPC minutes reveal that there was no agreement among the eight committee members on whether inflation would be above or below the 2pc target in the medium term. It is currently at 3.4pc.
"For some members, there was little change in the overall balance of risks, but the probability of inflation being either materially above or below target in the medium term had increased," the minutes said.
"For some other members, developments in inflation indicated that the balance of risks had moved marginally to the upside.
"Other members placed marginally more weight on developments in financial markets and, for them, the balance of risks had shifted slightly to the downside."
The minutes record that the committee's central view "remained that the substantial margin of spare capacity was likely to persist for some time and would bear down on inflation into the medium term".
However, there were differences among members about the extent of that too, and there were also disagreements about the extent to which current high inflation would influence the public's behaviour.
When the committee next meets in July, it will be able to consider the impact of the government's budget announced on Tuesday, which included some higher taxes and sharp spending cuts.
"Overall, it's obviously a testing time for the committee but, for now, most members appear to be holding their nerve," said Jonathan Loynes, economist at Capital Economics.
In another report, the British Bankers' Association said mortgage approvals rose for the third straight month in May but remained well below the recent peak in December.
The association said 36,709 mortgage loans were approved by major banks, still well below the 45,758 in December when there was a spurt of activity ahead of a tax rise.
Net mortgage lending was £2.55bn (€3.09bn), in line with the six-month average.
Unsecured borrowing fell in May, with consumers paying off £71m more than they borrowed, the association said.
Retail savings deposits rose by £429m compared to a six-month average of £2.9bn, suggesting that people were using any spare cash to reduce debt.