The Bank of England’s interest rate setters are becoming more concerned by the prospect of inflation, the minutes of their latest meeting have revealed.
A “number of members” of the nine-strong Monetary Policy Committee – which decides what interest rates should be – said that inflationary risks had risen.
Their comments suggested that they might act sooner to keep inflation in check. The pound rose by 0.5pc against the dollar on the news on Wednesday.
The MPC voted unanimously to hold the Bank rate at 0.5pc in July. Minutes of their meeting read: “For all members, the policy decision this month was clear cut.”
But analysts expect there to be more division on the committee in the coming months. Last week Mark Carney, governor of the Bank of England, signalled that the Bank’s policy rate could move upwards around “the turn of the year”.
He said that the decision to act was likely to come into “sharper relief” at that time, teeing up the markets for the first Bank rate increase in more than six years.
The MPC’s minutes showed that the committee expects that inflation is “likely to pick up notably” towards the end of the year. In particular, as oil prices remain static, they will drop out of the basket of items used to calculate inflation – pushing up the overall rate.
The committee said that were it not for “unusually low” contributions to the inflation rate from energy, food and imports the inflation rate would be at around 1.5pc.
It is now approaching a year since the MPC’s most hawkish members – those preferring an increase in interest rates – put an end to a period of unanimous voting.
Members Martin Weale and Ian McCafferty both called for a 0.25 percentage point increase to the Bank’s key policy rate last August, a callthey maintained until December.
In previous months two members of the committee – assumed to be Mr Weale and Mr McCafferty – have described the decision on rates as “finely balanced”. But the introduction of “clear cut” language suggests that the MPC’s voting is more co-ordinated.
However, the committe’s united front may have been closely related to the Greek debt crisis, which continued to rumble on as the MPC met on July 8.A deal has since been struck, alleviating much of the concern over market contagion.
The minutes said: “Absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced.”
Samuel Tombs, an economist at Capital Economics, said: “The recent easing of the crisis may be enough to shift some members to vote to raise rates next month.”
Some members “have become concerned that wage pressures are now too strong”, he said, which could in turn push inflation above the Bank’s 2pc target over the course of time.
The minutes showed that the committee believed “that the margin of economic slack created during the recession was now close to having been eliminated” when it met in July, implying that the time for a rate hike is drawing closer.
Colin Bermingham, of BNP Paribas, said: “It seems increasingly likely that we will see dissenting votes in the August meeting.”