RISING oil prices are worrying senior Bank of England officials, it emerged yesterday, as the Monetary Policy Committee (MPC) published the minutes of its March meeting.
The Bank voted 7-2 to keep monetary policy on hold, with only a pair of doves – Adam Posen and David Miles – calling for even more quantitative easing.
Quantitative easing is currently taking the Bank’s asset holding up to £325bn, while interest rates have been pegged down at 0.5 per cent for three years.
Inflation eased slightly to 3.4 per cent in February, with the Bank expecting subdued wages growth to weigh down on price pressures. “But there was a risk that this might be a less powerful restraining force in the future, especially if another round of energy price rises were to materialise,” the MPC warned.
“The major development during the month had been the sharp increase in crude oil prices,” the minutes stated, describing the outlook for prices as a “clear risk”.
“If oil prices were to rise to a level significantly higher than the committee currently assumed, then that would tend to slow the global and domestic recovery, reduce supply growth, and put upward pressure on domestic costs and prices,” it said.
The degree to which rising prices could knock output while also stoking inflation was uncertain, the MPC admitted.
On a more positive note, the minutes said that “it appeared more certain that underlying growth was likely to pick up in the UK in the near term”, although it warned of an uncertain economic outlook.