The minutes of the bank of England’s Monetary Policy Committee (MPC) meeting that occurred on August 4 and 5 have been released. The minutes have been anxiously awaited to give analysts an insight into the climate in which the meeting was held. Again there was a vote to leave the standard base interest rate unchanged.
As far as the interest rate, once again, external member of the committee, Andrew Sentance voted for a 0.25 per cent increase. His argument was that “recovery was gaining momentum and the inflation outlook had shifted sufficiently to justify beginning to raise rates gradually”. He used data from the growth of second quarter to back his opinion, which grew at 1.1 per cent, almost double the expected rate. This made the third straight month in a row Sentance has voted for an increase to 0.75 per cent for the standard base rate. He has been the lone “Yea” vote and so far no other members have been persuaded enough by his arguments to vote with him.
The MPC voted to keep things as they were since there seems to be a delicate balance in play right now with many factors involved that have yet to show their influence on the economy, such as the planned budget cuts. “These members stood ready to respond in either direction as the balance of risks evolved,” the minutes said.
The minutes also reflected the MPC’s concern about food prices. In the recent weeks there have been many influences on the global food market. Demands will be higher as China and Pakistan have lost a considerable amount of their crops due to flooding. Meanwhile, Russia is estimated to have lost a fourth or more of their grain crops and they are a major exporter of grain. The loss of wheat pushed Russia to ban any exports of wheat for the rest of the year. With over 20 million people in need of food aid in Pakistan and more to be added for many months ahead, food prices will get another pull from the demand of staples like wheat, rice and corn and with less coming in to supply.
“Increases in the prices of some agricultural commodities in the days leading up to the meeting suggested that the increased volatility of CPI inflation seen in recent years might continue,” the minutes said.