MPC still split six-three on rate hike

The Monetary Policy Committee (MPC) was again divided six-three against a rate rise earlier this month, minutes from the April meeting reveal.

For the third month, the committee was split three ways over whether or not to hike rates - whilst six members voted to keep rates at their historic low of 0.5%, Andrew Sentance favoured a 0.5% hike in the base rate as Spencer Dale and Martin Weale pressed for a rise of 0.25%.

Adam Posen was again the lone voice calling for an increase in the asset purchase, or quantitative easing, programme by £50bn to £250bn.The MPC said in its minutes inflation had risen to well above the 2% target as a consequence of higher energy and other commodity prices, increased VAT and the impact of the past depreciation of sterling.

It added it was likely to remain well above the 2% target for much of 2011.

"Nevertheless, the committee's central view remained that a substantial margin of spare capacity in the economy was likely to persist for some time and would bear down on inflation in the medium term, as the impact of the factors temporarily boosting inflation waned," said the minutes.

The minutes also said for three committee members the argument for removing some of the monetary stimulus "remained persuasive".

Other members, it said, concluded an increase in rates was not appropriate, arguing there was no evidence inflation expectations might become entrenched.

The three-way interest rate split again highlights the challenges facing committee members as they look to perform a financial juggling act by curbing escalating inflation without snuffing out growth.

But amid these tensions, the unexpected fall in the CPI measure of inflation to 4% in March, down from 4.4%, would have helped drown out calls for a rate rise. Committee members would have been privy to the inflation data at time of the April meeting.

The surprise decline in inflation in March - the first fall in eight months - will have also strengthened the arm of Bank governor Mervyn King and deputy governor responsible for monetary policy Charlie Bean who have consistently argued high inflation is a temporary phenomenon caused by external factors.

In addition, a spate of negative economic news will have also given ammunition to those members arguing a sudden rate rise could derail the recovery. Earlier this month, the International Monetary Fund downgraded its growth forecast for the UK this year to 1.7%, down 0.3% from its previous prediction in January.

The high street is also engulfed in gloom amid a drop in consumer confidence as the coalition's spending cuts start to bite.

In April, the Bank held interest rates at 0.5% as fears over a sluggish economic recovery outweighed inflation concerns.