BOE MINUTES - MPC considered Jan rate rise, 2 vote for hike

inspector_monkfish

09:30 26Jan11 - BOE - MPC VOTED 7-2 TO HOLD RATES AT 0.5 PCT, SENTANCE AND WEALE CALL FOR 25 BPS RISE

09:30 26Jan11 - BOE - MPC CONSIDERED CASE FOR RATE RISE IN JAN, MOST MEMBERS SAW RISE IN MEDIUM-TERM CPI RISKS

09:30 26Jan11 - BOE - MPC VOTED 8-1 TO KEEP QE TOTAL AT 200 BLN STG, POSEN VOTED FOR 50 BLN STG INCREASE

09:30 26Jan11 - BOE - FOR SOME MPC, JAN RATE DECISION WAS FINELY BALANCED, FEB INFLATION REPORT WILL HELP ASSESS CPI RISKS

09:30 26Jan11 - BOE - SOME MPC SAID JAN RATE RISE COULD BE MISINTERPRETED AS SIGNAL MPC WOULD RAISE RATES RAPIDLY, HURT ECONOMY

09:30 26Jan11 - BOE - PROBABLE NEAR-TERM CPI PATH WILL BE "MATERIALLY HIGHER" THAN FORECAST IN NOV INFLATION REPORT

09:30 26Jan11 - BOE - UPSIDE RISKS TO CPI FROM COMMODITY PRICES, IMPORTED INFLATION, RISE IN PRICES OF DOMESTIC IMPORT SUBSTITUTES

09:30 26Jan11 - BOE - DOWNSIDE RISKS TO CPI FROM GOVT SPENDING CUTS, EURO ZONE DEBT CRISIS, TIGHT CREDIT CONDITIONS

09:30 26Jan11 - BOE - MPC SAW LITTLE CHANGE IN RISKS TO GROWTH SINCE DEC MEETING, GROWTH LIKELY IN LINE WITH TREND DESPITE SNOW AND VAT

09:30 26Jan11 - BoE - MPC considered Jan rate rise, 2 vote for hike

LONDON, Jan 26 - Bank of England policymaker Martin Weale unexpectedly joined Andrew Sentance in voting for a quarter-point rate rise this month, minutes to the BoE's January Monetary Policy Committee meeting showed on Wednesday.

The minutes said the MPC explicitly considered the case for a rate rise in January, and that for some members this was a finely balanced decision.

"For most members, recent developments implied that the risks to inflation in the medium term had probably shifted upwards," the minutes said.

However, the MPC deliberations took place before policymakers knew that Britain's economy unexpectedly contracted by 0.5 percent in the last three months of 2010.

The MPC opted to keep rates on hold, citing downside risks to inflation from spare capacity, fiscal austerity, a potential jolt to exports from the euro zone crisis as well as tight credit conditions.

"Some members also noted that an increase in Bank Rate ... might be misinterpreted as a signal that the Committee would attempt to bring inflation back to target excessively rapidly, which could cause expectations of a relatively sharp tightening of monetary policy that could have a detrimental impact."

The MPC had access to an early estimate of December's 3.7 percent inflation reading but did not know about the scale of the impact on growth from December's harsh weather.

Their expectation was that the economy would grow roughly in line with trend in late 2010 and early 2011, despite snow in December and a rise in value added tax in January.

Adam Posen repeated his call for a 50 billion pound expansion of the central bank's quantitative easing programme, though he noted that a sustained rise in commodity prices or weaker sterling could outweigh downward domestic price pressures.

Other members of the MPC saw upside risks to inflation from commodity prices, strong growth in emerging markets that could push up the cost of imports and rising household inflation expectations.

The publication of the minutes came after BoE Governor Mervyn King said on Tuesday that he expected inflation to rise towards 5 percent in the coming months, but that this alone was not enough to justify an immediate rise in interest rates.

He also said that the BoE could preserve its credibility if it explained its decisions well, and that large relative price shocks were an inevitable part of the economy's rebalancing.

Typhoon2000

So Posen changed his mind from December and voted to keep rates as they are rather than raise them.

purch

So Posen changed his mind from December and voted to keep rates as they are rather than raise them

I think you may be confusing Adam Posen and Andrew Sentance.

Sentance has been advocating a Base Rate rise for many months, Posen has been advocating more QE.

michaels

So wrong on inflation and wrong on growth...

Interesting comment on BBC website HYS to the effect that imported deflation from China in the early and middle part of the decade was not considered to be outside the scope of monetary policy whereas imported commodity inflation is?

purch

BOE MINUTES - MPC considered Jan rate rise, 2 vote for hike

I think that is rather good news. I would have preferred a stronger sign that they moving to a tightening bias in the near term, but every little helps.

The fact that they won't hike is irrelevant, the markets need to see that they are at least taking it seriously.

Wookster

More hawkish indeed, but how will they vote after the GDP numbers?

RenovationMan

Wookster wrote: »

More hawkish indeed, but how will they vote after the GDP numbers?

It makes you wonder why they are voting before they receive such important figures. Surely their decision should be based on all of the available information. While the GDP report may not have been completely compiled, I'm sure that the BoE could have requested some interim figures for their meeting at least. It seems the BoE were as surprised as the rest of us.

I do wonder if Sentance will keep up his stance on raising rates, despite the GDP figures, and whether Weale will retract his vote for a rise. Sometimes when people make a wrong decision they stick with it regardless, hating to admit that they were wrong. I wonder if either Sentance and Weale are man enough to do so?

angrypirate

RenovationMan wrote: »

It makes you wonder why they are voting before they receive such important figures. Surely their decision should be based on all of the available information. While the GDP report may not have been completely compiled, I'm sure that the BoE could have requested some interim figures for their meeting at least. It seems the BoE were as surprised as the rest of us.

I do wonder if Sentance will keep up his stance on raising rates, despite the GDP figures, and whether Weale will retract his vote for a rise. Sometimes when people make a wrong decision they stick with it regardless, hating to admit that they were wrong. I wonder if either Sentance and Weale are man enough to do so?

I thought the BoE normally got a preview to the expected figures in their meeting?

IveSeenTheLight

from here
http://www.bbc.co.uk/news/business-12284778

Another Bank of England policymaker votes for rate rise

The Bank' s Monetary Policy Committee has kept rates at 0.5% since March 2009
Continue reading the main story UK Economy

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• King says pay squeeze necessary
• Shock contraction in UK economy
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Bank of England policymaker Martin Weale has joined Andrew Sentance in voting for an interest rate rise.
Minutes of the Monetary Policy Committee's most recent meeting show members explicitly discussed the case for raising rates in January.
For most members the risks to inflation "in the medium term had probably shifted upwards," the minutes said.
But this was before Tuesday's shock news that GDP growth has contracted and a warning that inflation could hit 5%.
Inflation path
"For two members, the evidence suggested that the balance of risks was already sufficiently clear to warrant an immediate increase [in interest rates]," the minutes said.
Mr Sentance has long advocated a rate rise, and at the MPC meeting on 12-13 January he was joined by Mr Weale in voting for raising the Bank Rate from its current historic low of 0.5% to 0.75%.
CPI inflation has exceeded the Bank's 2% target by more than one percentage point for more than a year, and rose to 3.7% in December.
On Tuesday, Bank England governor Mervyn King forecast that inflation could rise to 4-5% in the coming months because of higher food and fuel prices and a rise in VAT.
However, he added that inflation would fall back sharply in 2012, a belief that appeared to be shared by most MPC members.
The minutes say: "The balance of risks continued to suggest that inflation would fall back to around the target once the impact of the factors boosting it had dissipated."
Continue reading the main story “Start Quote

January's MPC minutes suggest that the Committee was edging closer towards a near-term rate hike - but weak GDP figures have altered the picture somewhat”

End Quote Vicky Redwood Capital Economics
'Sharp tightening'
Some MPC members were concerned a rate increase could be "misinterpreted as a signal that the committee would attempt the bring inflation back to the target excessively rapidly".
A "relatively sharp tightening" could hurt activity and confidence, the minutes say.
Analysts said that there was evidently now much more concern about inflation on the MPC.
Howard Archer, of Global Insight, said: "With Martin Weale joining Andrew Sentance in voting for an interest rate hike in January and the MPC considering the case for such a move, there is now a clear tightening bias within the MPC."
However, the meeting took place before the surprise news that the UK economy had contracted by 0.5% in the last three months of 2010.
Although severe weather hit activity in the quarter, the Office for National Statistics said that even if there had been no winter freeze weather economic growth would still have been "flattish".
Economists believe this sudden reduction in GDP makes the chances of a rate rise less likely.
Vicky Redwood, of Capital Economics, said: "January's MPC minutes suggest that the Committee was edging closer towards a near-term rate hike - but of course yesterday's weak GDP figures have altered the picture somewhat."
Meanwhile, the MPC minutes also showed that Adam Posen repeated his call for a £50bn expansion to the Bank of England's quantitative easing programme.

Graham_Devon

RenovationMan wrote: »

I do wonder if Sentance will keep up his stance on raising rates, despite the GDP figures, and whether Weale will retract his vote for a rise. Sometimes when people make a wrong decision they stick with it regardless, hating to admit that they were wrong. I wonder if either Sentance and Weale are man enough to do so?

Andrew Sentence has been the only one to be proven right, let alone wrong.

He's been saying for months inflation will be higher than the BOE estimates. Meanwhile the BOE public reportings have been that inflation will cool and fall off, continually saying this will be in 12 months (for about 2 years).

It's only since the last meeting the BOE themselves as a collective have changed stance, and suggested were going to see inflation high for a while yet. Notice the lack of comment on how it will revert back to target this month in x months into the future.

IveSeenTheLight

Graham_Devon wrote: »

Andrew Sentence has been the only one to be proven right, let alone wrong.

He's been saying for months inflation will be higher than the BOE estimates. Meanwhile the BOE public reportings have been that inflation will cool and fall off, continually saying this will be in 12 months (for about 2 years).

It's only since the last meeting the BOE themselves as a collective have changed stance, and suggested were going to see inflation high for a while yet. Notice the lack of comment on how it will revert back to target this month in x months into the future.

We all knew inflation would take a hit given the increase in VAT

Even Merv said so.

On Tuesday, Bank England governor Mervyn King forecast that inflation could rise to 4-5% in the coming months because of higher food and fuel prices and a rise in VAT.
However, he added that inflation would fall back sharply in 2012, a belief that appeared to be shared by most MPC members.