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Three way split on interest rates for July

August 14, 2008 by admin  
Filed under News, News-Mortgages

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The minutes of the latest Monetary Policy Committee meeting, which was held earlier this month, has shown that there was a three way split on interest rate movement for the month of July, indicating that setting the base rate is becoming an increasing challenge for members of the powerful committee and for the Bank of England. The minutes showed that whilst the majority of members voted to keep the rates on hold at 5%, one voted for the rate to be cut due to the slowing economy and another voted for the base rate to be raised due to soaring inflation levels.

Seven members of the MPC, including the governor of the Bank of England, Mervyn King, voted to keep rates on hold at 5%. However, David Blanchflower wanted to see the base rate cut in order to boost the economy, and Tim Besley prioritised on the rising level of inflation by voting for a rise in the base rate. This is only the second time that there has been such division between MPC members since 1997.

The minutes said that the decision for the month of July was a very difficult one, and went on to state: ‘A rate change this month would be a surprise at a time when credit and other financial markets remained fragile, and any change in rates would be better communicated alongside the Bank’s August inflation report.’

Inflation levels have now risen to 3.8%, which is close to double the government’s 2% target, and this has given rise to speculation over whether interest rates will be cut again at all this year, and even whether the base rate will rise, despite the slowing economy.

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