Bank’s Sentance in shock call to raise rates
Andrew Sentance, a member of the Monetary Policy Committee (MPC) at the Bank of England, backed a 25 basis-point rate hike earlier this month, minutes of the Bank's rate-setting meeting released Wednesday.
Sentance did not call for a reduction in the Bank's stock of asset purchases, made as part of the quantitative easing program. It is the first vote for a rate hike since August 2008, when Tim Besley called for a quarter-point rise. Analysts had expected all eight MPC members - they are one down following the departure of Kate Barker - to back a rate hold. Bank rate is now 0.5%.
Sentance argued inflation had proved "resilient" in the aftermath of the recession and that it was, therefore, appropriate to "withdraw gradually" from the exceptionally loose monetary stimulus introduced in late 2008 and 2009. At 3.4% in May, annual CPI inflation remains way above the Bank's 2% inflation target.
However, the committee's other seven members disagreed, saying the current interest rate and stock of asset purchases remained appropriate to meet the inflation target. The other members added that changes to the balance of risks were "insufficient" to warrant a change in the stance of monetary policy.
The Bank's May Inflation Report forecasts inflation to decline over the second half of the year. But the minutes highlight a split on the committee, with more hawkish members warning that developments in inflation have moved marginally to the upside and others placing marginally more weight on developments in financial markets, taking the view that the balance of risks remain to the downside.
Marc Ostwald, a strategist at Monument Securities, a brokerage, told CentralBanking.com that Sentance's vote suggested the Bank may increase rates sooner than previously thought. "It's not something that brings a rate hike into view in the next three months but the likelihood of a rate hike in the next six to nine months is now increasing," Ostwald said.
Ostwald said Sentance should be applauded for striking out as the risks from inflation were now rising but that markets were being complacent and not taking his remarks seriously.
The sterling rose slightly against the dollar in reaction to the newsm gaining 0.19% from $1.489 at 09:30 to $1.492 at 11:05.
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