MPC's Bean: We were close to raising rates before crisis

The deputy governor of the Bank of England has revealed how the Monetary Policy Committee (MPC) nearly raised rates earlier this year, before the downturn hit markets.

Charles Bean said as recently as May there were calls from a substantial section of the MPC to raise rates from their historic low of 0.5%.

Speaking to the Council of Mortgage Lenders (CML), Bean said: "As recently as our May meeting, a third of the Committee were voting to raise the Bank rate from its emergency level of 0.5%.

"Although I did not join them in voting to raise the Bank rate, I did view the arguments for and against a tightening as being finely balanced."

However, he said such was the deterioration in the outlook since then, the MPC was forced to expand its quantitative easing programme by £75bn at the last meeting, to stave off deflation.

"Without action, and despite the present excessive level of inflation, the extra margin of slack meant that inflation would consequently be more likely to undershoot, rather than overshoot, the 2% target in the medium term," he said.

Bean's comments are ahead of the upcoming meeting of the MPC next week. It is widely expected rates will be left on hold, with potentially more QE on the way.

He also warned although GDP growth has picked up - with a better than expected first reading for Q3 of 0.5% - the outlook remained bleak.

"Business surveys and other indicators suggest that the underlying rate of expansion has probably eased," he said.

"Those same surveys point to only very moderate growth at best in the final quarter."

The MPC member also reiterated the committee's view that CPI inflation - currently at a record high of 5.2% - will fall away next year.

"One cannot rule out further adverse external price shocks, but a sharp fall in inflation is the most likely outcome, and that in turn should mean that the squeeze on real household incomes will ease, providing some support for consumer spending," Bean said.