Details of December's gathering of the Bank's monetary policy committee showed a more hawkish tone over the rising cost of living – which has remained significantly above target through 2010.
The minutes also showed that the MPC was again split three ways over monetary policy. Andrew Sentance continued to push for a rise in interest rates to 0.75%, while Adam Posen again supported a £50bn expansion of the Bank's £200bn quantitative easing programme. The remaining seven members voted for rates to remain at 0.5%, and to leave QE unchanged.
The meeting was held two weeks ago, against a backdrop of the eurozone debt crisis. The committee had also been privately briefed that inflation had risen again in November, with the consumer prices index hitting 3.3%.
According to the minutes, most members of the committee felt there is still enough spare capacity in the economy to pull inflation down in the medium term. However, there was also concern about commodity prices and rising household inflation expectations.
"Most of those members considered that the accumulation of news over recent months had probably shifted the balance of risks to inflation in the medium term upwards," the minutes explained.
City economists were not surprised by the 7-1-1 split. "Although the MPC thought that the risks to inflation had shifted upwards a bit, it also noted the heightened risks from the eurozone and reiterated its view that the economy still has a lot of spare capacity," said Vicky Redwood of Capital Economics.
Inflation is likely to get another boost in 2011 when VAT is raised to 20%. Today's minutes predict that CPI "could well" hit 4% in the spring, twice the official target set by the government. Despite this, the MPC is not generally expected to raise borrowing costs for several months.
"With eurozone sovereign debt worries, fiscal austerity, falling house prices and tight credit conditions set to constrain the recovery, and therefore inflation, we still doubt there will be an interest rate rise in 2011," said James Knightley of ING. For the latest updates PRESS CTR + D or visit Stock Market news Today
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