MPC unanimous on policy at March meeting despite some worries on inflation

City A.M. Reporter
The Bank of England’s Monetary Policy Committee voted unanimously to keep monetary policy unchanged this month, but some members noted an increase in upside inflation risks due to the fall in the pound.

Minutes of the MPC’s 3-4 March meeting, published yesterday, showed all nine members agreed to keep interest rates at a record low of 0.5 per cent and leave the £200bn quantitative easing programme unchanged.

Although policymakers still expected the weak economy to bear down on inflation in the medium term, there were signs that some are starting to worry that it might not fall as quickly as they had hoped.

“Members drew different inferences about how the balance of risks to inflation was evolving,” the minutes said. “Some members considered that the upside risks to inflation had increased slightly over the month; others felt that the balance of risks had not changed materially.”

The minutes were in line with analysts’ expectations and market attention was taken up by news of an unexpected fall in unemployment benefit claims. Nonetheless, some analysts reckoned some on the MPC were now taking more account of the risk that inflation might not fall as fast as they had expected.

“You’ve got to be careful not to exaggerate it, as the differences are quite marginal, but there seems to be less unanimity,” said Ross Walker, economist at RBS. “I just wonder if they’re preparing the ground for an escape route if they need it. I don’t think anyone’s too worried about where CPI peaks in the first quarter, there’s more focus on how quickly it falls back.”

Inflation surged to 3.5 per cent in January -- obliging governor Mervyn King to explain the move in a public letter to chancellor Alistair Darling.