Bank of England split over keeping interest rates low in August Bank of England split over keeping interest rates low in August The Bank of England's rate-setting committee remained split in August over keeping borrowing costs at a record low with Andrew Sentance again voting for a rise.

Minutes from the meeting, when rates were left at 0.5%, showed the monetary policy committee (MPC) weighed arguments for tightening policy and for loosening it. Members considered recent surveys suggesting growth may slow in coming months and signs that there was plenty of spare capacity in the economy to help keep inflation in check as well as some pressure from George Osborne's June budget. But they also discussed "arguments in favour of a small increase in bank rate from its exceptionally low level". The minutes noted: "Activity had strengthened in recent quarters both domestically and internationally.

UK inflation had been above target in all bar nine of the past 50 months. And the increase in VAT would mean that inflation would stay above target for longer than previously expected." Sentance argued for the third month running that policy had been ultra-loose for long enough and rates should rise to 0.75%. The mention of a discussion over tightening policy and no move by the Bank to extend its programme of quantitative easing (QE), whereby it pumps money into the financial system, helped the pound strengthen against the dollar and euro today.

But on the whole, economists said the minutes did not change a widely held view that rates will remain at 0.5% – where they have been since the depths of the recession in March 2009 – for the rest of this year. "The committee is still in wait-and-see mode, with most members unconvinced by the case either to tighten or loosen policy," said Vicky Redwood at Capital Economics. "We still think that the MPC is too optimistic about the growth outlook.

In our view, further QE is likely – and at the very least, rates are unlikely to rise any time soon." The minutes follow the Bank's quarterly inflation report last week in which it published its latest forecasts for growth and inflation. It said inflation would be above its 2% target throughout next year following the planned January VAT rise but that it would then ease back. The Bank cut its growth forecasts but they were still stronger than those of most economists, think tanks and the government's own fiscal watchdog, the Office for Budget Responsibility.

For the full story please visit www.guardian.co.uk

 

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