Sentance once again lone dissenter in MPC interest rate vote

Recently released minutes from the BoE’s Monetary Policy Committee meeting for August again show that Andrew Sentance was the lone committee member who voted against keeping interest rates at their current historic low.

Mr Sentance proposed instead that interest rates be increased by 0.25 percentage points in order to offset above-target inflation, spearheading an effort to ease the suffering of UK savers whose savings accounts cannot keep up.  In comparison, newest committee member Martin Weale, who replaces Kate Barker after the expiration of her term this past May, voted to preserve the current interest rate of 0.5 per cent.

Savers have had to resort to long term, higher risk fixed-rate bonds in order to counteract the high inflation rates. While the official measure of UK inflation, the Consumer Price Index, declined in July one tenth of a percentage point from its 3.2 per cent June high, the target of 2 per cent set by the government is still being exceeded by a large margin.

Mr Sentance’s repeated attempts to raise the BoE’s interest rates have been in order to curb runaway inflation. The CPI is routinely used as a benchmark for the Monetary Policy Committee, but Mr Sentance seems to be the only Committee member that has repeatedly questioned the wisdom of freezing interest rates at their current low for such a protracted period of time.

Mervyn King, Governor of the Bank of England, presented a quarterly report on inflation recently in which it was forecast that the inflation rate will drop on its own to below the 2 per cent target by the end of the 2011 calendar year.

Last May, at the release of its last inflation report, the BoE predicted that for the rest of this year inflation would persist in its status of being well above target.

The BoE was quick to point out that the Coalition government’s recently announced decision to increase VAT up to the 20 per cent mark in 2011 will contribute to a higher overall inflation rate, however.

The overall gist of the minutes from the MPC meeting indicate that the majority of Committee members felt that it was in the economy’s best interest to not only persist in the 0.5 per cent interest rate but also to continue to engage in the quantitative easing scheme set up by the Treasury.

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