Likelihood of May interest rate rise grows

Published on Wednesday 18 April 2007 14:40

THE publication today of minutes of the latest meeting of the Bank of England's interest rate-setters has given further backing to the likelihood of another increase in the cost of borrowing next month.

The Bank's Monetary Policy Committee voted 7-2 to keep rates unchanged at 5.25 per cent at their April 4-5 meeting, though hawks Andrew Sentance and Timothy Besley had wanted an immediate quarter point increase, which would have taken it to 5.5 per cent.

Official figures yesterday showed consumer price inflation (CPI) had spiked to 3.1 per cent in March, forcing BoE Governor Mervyn King to write an unprecedented letter to the government explaining why consumer price growth was so far above its two per cent target.

The seven members who voted for no change in April divided into two camps.

The first side believed there was "no compelling case for a change in interest rates this month".

The others, saw the balance of inflation risks on the upside in the medium term.

The BoE is due to publish its quarterly inflation report in May and the minutes showed most MPC members wanted to wait until then before deciding.

"The case for a May hike appears as close to a done deal as we have seen," said Alan Clarke, UK economist at BNP Paribas.

"The key question is whether 5.5 per cent is the top in interest rates."