The Monetary Policy Committee – united they stand, divided they fall

Today’s Bank of England MPC minutes show that the Committee is at last speaking as one. All nine members voted for a quarter of a point hike in rates to 5.5%. It is interesting to see such a strong consensus emerging. This is presumably due to the clearness of evidence presented in the May Inflation Report with regard to the upside inflation risk posed to the UK economy, and maybe the realisation that in order to send a strong message they need to be united behind Mervyn King. Previously no such united front was achieved as the individual members were encouraged to express their individual views, but now with times beginning to get tough, a united MPC is critical to the successful heading off of the inflation threat. This is the first time the Committee has acted in unison to move policy rates since August 2004, a year they worked actively together as a team agreeing unanimously to push rates higher at four separate meetings. I would expect further rates hikes by a hopefully unified MPC as they face the inflationary threat posed by the worldwide loose monetary policy enacted following the turn of the century turmoil in equity markets. Indeed the parting shot from today’s May minutes pointed to further rate rises ahead.

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