THE rift at the heart of the Bank of England deepened yesterday after its chief economist threw his weight behind calls for interest rates to rise.
Spencer Dale joined independent Monetary Policy Committee (MPC) members Andrew Sentance and Martin Weale in voting for higher borrowing costs this month to bring runaway inflation back under control, according to the minutes of the Bank’s February meeting published yesterday.
Dale is the first internal Bank member to break the party line, that rates should for the time being remain at their current historic low of 0.5 per cent, and it was the first effective 6-3 split on the MPC since July 2007.
Sentance who has been calling for a rate rise since June, pressed harder this month by voting for a 0.5 percentage point rise to one per cent, while Weale repeated his January call for a 0.25 percentage point rise, a position now also backed by Dale.
Even those who opposed an immediate increase, acknowledged in the minutes that the hawks’ argument “had grown in strength”; but said “there was merit in waiting to see” how the economy performed at the start of the year before acting.
The emergence of a third hawk caused some analysts to bring forward their predictions of when a rate rise, widely expected to be May, could occur.
Simon Ward, Henderson’s chief economist, said yesterday that it could now come next month “if revised fourth-quarter GDP figures and surveys for February indicate that economic recovery is continuing.”
Alan Clarke at BNP Paribas said: “It is looking more likely that we get another rare meeting where the governor is out-voted.”
The pound surged almost a cent against the dollar to $1.6270, the strongest this year, and yields on short-term government debt edged higher after the minutes were published as markets priced in the liklihood of an interest rate rise. Money markets are pricing in a quarter-point increase in borrowing costs from their record low of 0.5 per cent by May, with rates seen rising to 1.25 per cent by the end of this year.