Bank urged to 'hold its nerve' over rates despite inflation fear

Business leaders yesterday called on the Bank of England to "hold its nerve" on interest rates despite growing concerns over inflation.

Minutes from this month's rate-setting meeting, published yesterday, showed the bank was no closer to voting for an increase. Two of the policymakers backing a rise conceded the argument was still "finely balanced".

The bank's monetary policy committee (MPC) voted 6-3 against a hike in rates for a fourth straight month, with hawks Andrew Sentance, Martin Weale and Spencer Dale all saying the case for tightening was strong. But both Weale and Dale admitted that the argument was finely balanced due to a still sluggish economy.

Hide Ad
Hide Ad

Economists had seen a small chance that weak first-quarter GDP data could have persuaded either Weale or central bank chief economist Dale to stop calling for a rate rise.

The British Chambers of Commerce said that following Tuesday's figures showing a rise in inflation "the pressures facing the MPC have intensified".

David Kern, the body's chief economist, said: "While we accept that interest rates will have to increase towards the end of the year, there is no evidence that wage pressures are strengthening.

"Against this background, the MPC must hold its nerve and postpone interest rate increases until the recovery is more secure."

The minutes showed that Weale and Dale both persisted with their vote for a quarter-point rise, while arch-hawk Andrew Sentance, at his final MPC meeting, continued to vote for a half-point increase. The six members who decided against a rate rise argued that such a move could further hit consumer confidence.

Royal Bank of Scotland economist Ross Walker said: "The most interesting thing is the line from Dale and Weale that it was a finely balanced decision."