Three-way split in ranks at Bank's rate-setting caucus

THE high-wire gamble on whether yesterday's public sector axe will tip Britain back into recession was highlighted yesterday by a three-way voting split on the Bank of England's monetary policy committee.

Minutes published from the October 6-7 MPC meeting showed one member wanted more monetary stimulus for Britain's stuttering economy via a second round of quantitative easing. It was the first such call for adding to the BoE's 200 billion asset purchase programme since November 2009.

But Adam Posen's view contrasted with colleague Andrew Sentance, who voted for the fifth consecutive month for a 0.25 per cent hike in interest rates, while the rest of the committee voted for no change on monetary stimulus. Sentance argued that the MPC's credibility could suffer if policymakers did not react to deal with high inflation in recent months.

The split in the MPC's ranks came on the day that public borrowing figures hit a record high in September, and the day after BoE governor Mervyn King told business leaders that Britain faced a "sober decade" to get over the lending binge from the early 1990s to the early 2000s.

Peter Dixon, an economist with Commerzbank, said: "The debate on the MPC is leaning a bit more towards the Posen (more quantitative easing] view, rather than the Sentance view, which is looking increasingly isolated on the basis of the evidence."

Philip Shaw, chief economist at Investec, said: "It looks as though the remaining (MPC] members are ambivalent about changing policy in either direction."

Most MPC members thought the balance of growth/inflation risks had not changed enough to move interest rates from historic lows of 0.5 per cent, the minutes revealed. But some felt the chances that more monetary stimulus would be needed had risen in recent months, the minutes said.