Bank divided over interest rates

20 June 2007

It’s emerged that the Bank of England’s decision to keep interest rates on hold at 5.5% this month was agreed by a vote of just five to four.  Analysts say this tight vote may increase the chances of further rate rises.

Minutes from the meeting of the Bank’s Monetary Policy Committee (MPC) show that four members voted for a rise of 0.25%, including the bank’s governor, Mervyn King.

This is only the second time that the governor has been on the losing side of the Bank’s monthly decision on interest rates. 

Interest rates are currently 5.5%, after four increases since last August in an attempt to rein in inflation.  Inflation fell to 2.5% last month from 2.8% in April, but it remains well above the Government’s 2% target.

Now analysts say the markets should “batten down the hatches” for another rise in interest rates – possibly as early as July.  Leading economist, Dave Brown, said:  “It was not just the close vote – 5-4 – but the fact that Mervyn King threw his weight behind calls for a hike in June that shrieks out higher rates ahead.”