Rate-setters' four-way split brings threat of rise nearer

The threat of interest rate hikes as soon as next month moved closer today as a third Bank of England policymaker switched sides to push for dearer money and an unprecedented four-way split opened up among rate-setters.

The Bank's chief economist Spencer Dale swelled the ranks of the committee hawks, joining Martin Weale and Andrew Sentance in voting for rises, and sparking predictions of a potential March move from the committee.

The nine-strong committee voted in four different ways this month. Dale and Weale are pushing for a quarter-point increase but Sentance, who has been calling for a rate rise since last June, upped the ante further to call for a 0.5% hike with inflation running at 4%, double the Bank's 2% target.

The rest of the committee, including Governor Mervyn King, are holding fire to see if the UK picks up from its shock 0.5% slump at the end of last year, but Adam Posen again called for the Bank to pump an extra £50 billion into the economy to shore up the recovery.

With Dale, Weale and Sentance believing the case for hikes "compelling" as global inflation pressures mount, only two more votes on the nine-strong MPC are needed to win a majority.

Rates have been at 0.5% since March 2009 but the minutes of the February meeting signalled that the committee's "wait and see" stance is wavering. Some members who voted to hold steady this month thought the case for hikes had "grown in strength" but held off to "assess whether or not the decline in GDP in the fourth quarter presaged sustained economic weakness" and to prevent a damaging blow to consumer confidence.

Markit chief economist Chris Williamson said: "It's not going to take much to tip the balance. We could be seeing a rate rise as soon as March."
Sterling hit a high of $1.6272 against the dollar, the highest since early February.

British Chambers of Commerce chief economist David Kern said they signalled an "unwelcome shift" in stance and urged the committee to keep rates at their current record low for longer.

"Since there is no evidence that inflationary expectations are increasing and wage pressures are still modest, we believe that there is no need for the MPC to react immediately," he added.

Mortgage lending for house purchases remained marooned near two-year lows last month amid scarce signs of life in the property market, the British Bankers' Association said today. Just 28,932 loans were approved for homebuyers during the month, virtually unchanged on December.

IHS Global Insight economist Howard Archer said: "Housing market activity remains stuck in the doldrums, which seems highly likely to maintain downward pressure on prices in the early months of 2011 at least."