The much-awaited February Bank of England minutes are out — and lo and behold — it looks like Monetary Policy Committee member Andrew Sentance was right.
They were more interesting than usual.
Meet the new club of dissenters in the Bank’s most recent rate decision (a hold):
That’s Andrew Sentance, Martin Weale and BoE chief economist Spencer Dale. Sentance wanted to increase by 50 basis points, while Dale and Weale wanted 25bps.
And this was their reasoning:
For three members, the case for removing some monetary stimulus at this meeting was compelling. For those members, the upside risks to the medium-term inflation outlook from global inflationary pressures and the possibility that inflation expectations would move up outweighed the downside risks to inflation associated with uncertainty about the strength of the recovery and the possibility of persistent spare capacity. In part, this reflected a concern that the level of demand consistent with achieving the inflation target might be lower than previously thought. Two of those members favoured only a small tightening in policy, given the uncertainty about the economic outlook. The third member concluded that a larger reduction in the degree of monetary stimulus had now become appropriate. That member thought that there was mounting evidence that firms were able to pass on cost increases to the prices they set and noted also that nominal domestic demand had been growing for some time at near to the top of its typical range prior to the recession. In that member’s view it was significantly more likely than not that inflation would overshoot the inflation target in the medium term.
The immediate market reaction; gilt yields and sterling both up:
