The Monetary Policy Committee (MPC) of the Bank of England again voted down Andrew Sentance’s proposal to increase the bank rate by 25 basis points.
Led by Mervyn King, the governor of the Bank, the members voted 8-1 to keep the benchmark rate at 0.5%.
Sentance was the first member in months to vote against maintaining the bank rate at record lows. As inflation crept higher, he voted to raise the bank rate to 0.75% in both June and July. Sentance also wanted to withdraw some of the exceptional monetary stimulus provided by the easing in policy in late 2008 and 2009.
However, other MPC members agreed that evidence from Britain and abroad still indicates that the margin of spare capacity is likely to bear down on inflation.
They say the current level of bank rate and stock of asset purchases are appropriate to meet the inflation target in the medium-term once temporary effects have worn off.
Britain’s inflation rate slowed for the third consecutive month in July. (article continues below)
According to figures published by the Office for National Statistics yesterday, the consumer price index (CPI) fell to 3.1% from June’s 3.2%.
Despite the fall, King will have to write another letter to George Osborne, the chancellor of the exchequer, explaining why inflation is still above target. The government’s inflation target for Britain is defined in terms of CPI and is set at 2% or lower.
The prospects for Britain’s GDP growth have somewhat deteriorated over the month, according to minutes of the meeting.
Although consistent with continued growth, activity has weakened and data is now pointing towards a “temporary slackening” in the momentum of the global economic recovery. There are other factors indicating that the medium-term outlook for economic growth may have weakened too.