It is reported that there is a reduced chance of a rise in interest rates in the near term, given recent economic weakness, Bank of England policymakers have said. Minutes from its July meeting showed the Monetary Policy Committee seven to two in favour of holding rates at 0.5% for the second month in a row. Policy Committee members Spencer Dale and Martin Weale voted again to raise rates to 0.75%
Adam Posen again voted to increase the Bank's quantitative easing programme by £50bn to a total of £250bn. The voting pattern came as no surprise as the MPC has been split on monetary policy for some time. From February to May, three members had voted to raise rates - Mr Spencer, Mr Weale and Andrew Sentance. Mr Sentance, who had been the MPC's most hawkish member, having voted to raise rates to 1%, was replaced after the May meeting by Ben Broadbent, a former Goldman Sachs economist. Mr Broadbent voted to hold rates in both June and July.
The MPC said business surveys had pointed towards "continued modest underlying economic growth in the second quarter", but some softening in the outlook for the third quarter, in both manufacturing and services. It said the risks posed by an escalation of the eurozone debt crisis remained "substantial". "The funding costs faced by the major UK banks remained elevated, in part reflecting those risks emanating from within the euro area, and were likely to continue to affect the price and availability of credit to many households and businesses adversely," the minutes said.
"Recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term," it added.
David Kern, chief economist at the British Chambers of Commerce, said if rates were kept on hold until early 2012 it would be a welcome development. "With wage pressures remaining modest, and with businesses and consumers facing acute pressures, it is right to wait before raising rates," he said. "At present, only one member of the committee has voted for increasing the QE programme, but if the economy continues to shows sign of weakness in the next few months, the MPC should consider this option more seriously to avoid a setback."