Instant view - Bank split 7-1 on June vote

LONDON (Reuters) - The Bank of England’s Monetary Policy Committee was split 7-1 on its decision to leave rates unchanged this month, with Andrew Sentance voting for a hike to 0.75 percent, minutes of the Bank’s June 9-10 meeting showed on Wednesday.


“June’s MPC minutes show that a divide is opening up on the MPC, although most members still seem to believe that spare capacity will bring inflation down from its recent high rates.

“Andrew Sentence’s vote to raise rates by 25 basis points was unexpected, but not a complete surprise given his recent hawkish comments in the press. Admittedly, some other members also thought that the balance of risks to inflation had moved to the upside. But others thought that recent market developments meant that the risks had shifted to the downside.

“And news since the meeting should have calmed inflation nerves somewhat. For a start, CPI inflation itself fell from 3.7 percent to 3.4 percent in May. Meanwhile, the fact that the VAT rise is delayed until next year avoids a further spike in inflation in the near-term, and hence reduces the risk of a rise in inflation expectations.

“And lastly, the large tightening in the Budget will, other things equal, pull down the MPC’s inflation forecast (which was still based on the previous fiscal plans). Overall, it’s obviously a testing time for the Committee -- but for now, most members appear to be holding their nerve.”


“It is not surprising that he (Sentance) would be looking for a tightening at some point ... but the timing, particularly coming ahead of the budget, was a surprise.”

“The outlook for rates is very uncertain, the committee has to make a judgement on the downside risks from the budget and events elsewhere in Europe against the recovery and high headline rates of inflation.”

“It was widely heralded that there would be a sharp tightening in fiscal policy and the stance of the budget in general shouldn’t have come as a surprise so we may see Andrew Sentance continuing to vote for higher rates, the question is whether he is joined by other members of the committee.”


“The clearer deivisions that had opend up since the end of last year were going to prompt somebody to vote for a hike but we didn’t think that would be until August at the earliest.

“Sentance is historically the most hawkish member, but he’s tended to remain focussed more on economic survey data, whereas the main downside risks at the moment are in the financial sector or sovereign debt. Therefore, Sentance may not be a particularly good bellwether for other committee members.

“Reading the minutes as a whole, the balance of opinion has edged in a more hawkish direction, although for most other members there hasn’t been a significant shift, and next month they’ll have to factor in the budget, which may rein in the need for monetary tightening.”


“It’s clearly very surprising, someone voting for a hike. Sentance however has never made any secret of being on the hawkish side on inflation. I don’t think it will lead to a hike. If we get the continuation in the slowdown in inflation we saw subsequent to the meeting, he may fall back into line with the majority.”