The Bank of England’s monetary policy committee (MPC) voted eight to one at its rate-setting meeting earlier this month in favour of keeping the base rate on hold at five per cent.
According to the minutes of the MPC’s June monthly meeting, just one committee member argued against the proposed freeze, claiming that an increase in short-term inflation had been “outweighed by the prospect of slowing activity growth”.
David Blanchflower, the only MPC member arguing for a cut, suggested that the UK could mirror an earlier slowdown in the US unless action is taken to boost the British economy and offset a downturn in the housing market and consumer spending.
MPC members also discussed the possibility of increasing interest rates during the meeting in order to dampen inflation, which increased from three per cent in April this year to 3.3 per cent in May.
Analysts are now suggesting that interest rate rises could take place over the coming months if inflation continues to soar, pushed up by sharp increases in energy, fuel and food prices.
Bank of England governor Mervyn King wrote to chancellor Alistair Darling this week warning in an open letter that inflation could easily top four per cent later in 2008 and consumers should get used to higher prices.
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