Bank's two hawks back down over interest rates

THE two Bank of England hawks behind a call for higher interest rates have thrown in the towel, paving the way for historically low borrowing costs well into 2013 and a second round of quantitative easing (QE).

Minutes released yesterday of the monetary policy committee's (MPC) meeting earlier this month revealed all nine members are now singing from the same hymn sheet.

Spencer Dale and Martin Weale, who had been pushing for a tightening of monetary policy for the last six months, abandoned their calls in the face of a worsening economic outlook.

Although only one member, Adam Posen, voted in favour of so-called "QE2", others left the door open to printing more money if conditions continued to deteriorate, particularly in the eurozone.

Samuel Tombs of Capital Economics said interest rates could remain at 0.5 per cent until the end of 2013.

"And while the continued rise in inflation this year may prevent the MPC from extending quantitative easing in 2011, we continue to think that further asset purchases are likely in 2012," he added.

Nida Ali, economic advisor to Ernst & Young, said: "More QE has gone from being a mere back-up option to being a genuine possibility in the near future."