While the minutes of November’s meeting showed the MPC members voted seven to two in favour of raising the Base Rate, one member believed increasing the rates as an insurance policy against the threat of spiking interest rates, caused mainly by large gas and electricity price increases, was unnecessary.
The member stated once the immediate impact had diminished, inflation would fall sharply next year, so a rise in rates increased the probability of undershooting the target of 2 per cent.
A second dissenting member added the August Base Rate rise had yet to be properly felt. However, most members felt the risks posed to increasing inflation beyond target were enough to warrant a rise.
Ray Boulger, senior technical adviser for John Charcol, agreed the effect of increased energy prices would not be felt for some time and said the Bank seemed most concerned about potential wage increases over the coming months.
He added: “It takes time for the Bank Base Rate rise to filter through. We still don’t know the full impact of the August rate rise. There is a danger of pushing interest rates too far and too fast, as the lag effects of previous rises, combined with one rise too many, could push the economy over the edge. But on balance, I think it was the right thing to do.”
