MPC voted 8-1 for base rate rise
THE first rise in interest rates for almost four years was backed by a clear majority of the Bank of England's rate-setting committee, it emerged today.
All but one member - Marianne Bell - of the Bank's nine-strong Monetary Policy Committee voted in favour of a 0.25% rise in the cost of borrowing to 3.75% earlier this month.
Minutes from the meeting, which were published today, show fears over debt levels and the soaring housing market as among reasons for the increase.
Minutes of the MPC's November 5 and 6 meeting showed that most members thought that a rise was needed as inflation was forecast to be above target at the two-year horizon and rising.
While economists had predicted the decision would be unanimous, the minutes suggested that markets were right to expect more rate rises in the future.
'It was important that policy should remain forward-looking, so the present decision should be based on the Committee's assessment of the prospects for inflation and associated risks,' the minutes said.
The BoE said last week in its quarterly forecasts that underlying inflation, RPIX, was still most likely above its 2.5% target in two years and rising even after this month's rise in interest rates to 3.75%.
Most MPC members noted that even after the hike from a 48-year low of 3.5%, 'monetary policy would still be accommodative.'
Still, the MPC said that given the uncertainty about the effect of rate changes on highly indebted consumers, it would be 'appropriate to move interest rates cautiously.' Some analysts had expected some MPC members might even have voted for a half-point rise.
The minutes showed that the MPC was clearly worried that failing to raise borrowing costs this month for the first time in nearly four years would have likely kept boosting consumer debt toward unsustainable levels, increasing the risk of a crash in house prices.
Bell, one of the MPC's external members, wanted to keep policy unchanged this month as she believed the MPC's central forecast for inflation was too high.
She argued that the trade-off between growth and inflation may have improved in recent years and that forecasts of recovery in the euro zone may have been too optimistic.
She said that a rate rise some time in 2004 was likely to be warranted if inflation was to meet its target but hiking this month would cost some economic growth.
The BoE is charged by the government with keeping RPIX inflation at 2.5 percent at all times.
