Bank minutes to shed light on inflation worries

THE strength of the Bank of England's inflation concerns will become clearer today after the publication of minutes from the January 12-13 meeting of its Monetary Policy Committee.

Economists do not expect any change to the three-way vote split seen at the last three meetings, when MPC members Andrew Sentance and Adam Posen respectively voted for higher interest rates and more quantitative easing.

But markets will be keen to see if the MPC discussion offers any hint that policymakers were edging towards raising rates in the first half of 2011 rather than the second half, given rising inflation expectations among the general public.

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Bank Governor Mervyn King said in a speech last night that inflation could rise towards five per cent in the coming months, though he stressed this was not a reason to raise rates as the longer-term outlook suggested inflation would fall in 2012.

Up until the release of Tuesday's shock economic output data, which showed an unexpected 0.5 per cent fall in GDP, speculators had steadily brought forward their bets on a first Bank rate rise to May from November.

Inflation was at least a percentage point above the Bank's two per cent target throughout 2010, and hit a six-month high of 3.7 per cent in December.

December's minutes showed that some policymakers were growing more concerned about upward inflation risks, and last week Posen admitted that overseas price pressures -- if not those generated within the UK -- were giving him concern.

Yesterday's GDP data severely knocked market bets of an imminent rise in interest rates from their record low 0.5 per cent, but does not render the MPC discussion earlier in the month entirely moot.