MPC member supports case for a rate rise now

Dr Weale unexpectedly joined Bank hawk Andrew Sentance last month in voting for a quarter point rise in interest rates, and his remarks in a BBC interview suggest he did so again at the Monetary Policy Committee’s February meeting.

The Bank will not publish the meeting’s minutes until tomorrow, and Dr Weale’s vote had been in a small amount of doubt. After the release of data late in January showing a sharp fall in fourth-quarter GDP, he said that higher rates would not be needed if this downturn continued.

In yesterday’s interview, he was asked if a smaller rise in Britain’s record-low rates now could avert a bigger rise later.

“It is perfectly possible,” Dr Weale replied. “My expectation would be that – although there would be some costs – it would protect us from a squeeze later on, needed to get people’s inflation expectations back to the 2 per cent target.”

There was little market reaction to Dr Weale’s comments, and economists’ consensus forecast is that February’s vote against raising interest rates will prove to have been a repeat of January’s 7-2 split.

But Dr Weale said that he was concerned that a looming spike in inflation could cause public inflation expectations to rise, putting long-term upward pressure on wages and inflation.

“If people and businesses bargaining for wages expect high inflation... there is a risk they will build those expectations into their current behaviour,” he said.

Consumer price inflation is currently double its target, and Governor Mervyn King last week confirmed that it is likely to rise towards 5 per cent in the coming months – though he blames this on temporary one-off factors.

Dr Weale said that a rise in interest rates would not reduce inflation in the short-term.