BoE Minutes Show Another Split Among Members

Minutes for January's rate decision released today by Bank of England,
showed three-way split among members for the fourth-consecutive month,
but this time another member joined Sentance and called for rate
hikes. MPC members voted 6-2-1 to preserve interest at 0.50 percent
and the APF purchases at £200.0 billion.

Member Martin Weale joined Andrew Sentance and called for interest
rate hike to 0.75 percent as inflation moved to the upside to
threatening levels. The Minutes showed that 'For most members, recent
developments implied that the risk to inflation in the medium term had
probably shifted upwards,' adding that 'For two members, the evidence
suggested that the balance of risks was already sufficiently clear to
warrant an immediate increase.'

On the other hand, Adam Posen called for £50.0 billion increase in
the APF to £250 billion and voted for steady rates at 0.50%. He
called for further stimulus measures in order to boost recovery and
help the economy reach its long term potentials, giving more attention
to the intended sharp spending cuts in decades that will probably
weigh on growth outlook.

December's CPI index showed spiking inflation levels, reaching 3.7
percent, which exceeds the desired rate of the BoE and the upper-limit
set by the government at 2.0% and 3.0% respectively.
King in his last open letter to the Chancellor of the Exchequer
revealed that inflation will probably remain above the bank's target
till the end of next year, clarifying that the previously mentioned
temporary factors offset the downward impact of the margin of spare
capacity.

Temporary factors such as rising oil, the increase in VAT rates and
the appreciation of the pound of over the past two-years caused
inflation to remain elevated. MPC believes that the spare capacity in
companies and labor market would put downside pressure on prices till
it come back to target, adding that inflation prospects remain
uncertain.

The British economy contracted during the fourth-quarter of 2010 by
0.5 percent, compared with 0.7% expansion that was reported a quarter
earlier, putting more pressures on policy makers to re-consider their
stance and possibly consider adjustments in the upcoming rate meeting
to both interest rates and APF amount.

Mervyn King latest forecast suggest that inflation will remain above
4.0 percent in the upcoming period due to 'The past depreciation of
sterling, and increases in VAT and energy prices.'

Members considered raising interest in this month's meeting by the
small increase 'would still leave monetary policy highly
accommodative, and would not preclude the committee from increasing
the policy stimulus in future if that became necessary.' While other
members saw that the rise in rate would by 'misinterpreted as a signal
that the committee would attempt the bring inflation back to the
target excessively rapidly.'
Source: ActionForex.Com