A member of the monetary policy committee who wanted to raise interest rates higher than 0.5 per cent said his decision was the result of the Bank’s predictions on price and wage increases and inflation in the service sector.
Jonathan Haskel, an external member of the MPC, told the Treasury committee this morning (February 23) he put “more emphasis” on these factors as part of his decision.
He said: “Those three forward indicators I gave a little bit more emphasis on and I thought therefore we should move a bit sooner, but I have to stress it’s a very uncertain situation and a very finely balanced decision."
Five members of the MPC voted to raise interest rates to 0.5 per cent in February, with four voting to increase them further to 0.75 per cent.
Respondents to the bank’s decision maker panel had increased their expectations for price increases from 4.2 per cent in the three months to November, to 4.5 per cent for the three months to January.
The bank expects underlying earnings growth to hit 4.75 per cent over the coming year.
This comes as inflation hit 5.5 per cent in the 12 months to January, above the BoE’s 2 per cent target, according to the Office for National Statistics.
Haskel highlighted that instead of being “team permanent” or “team transitory” on the stickiness of inflation, he is “team vigilant”.
“The labels of transitory and permanent are not right and they pigeonhole people too much," he said.
He referenced the expected increase in oil prices, due to political tensions in Ukraine, and warned of the dangers of inflation becoming "embedded".
“What we don’t want is this blip of high gas prices in particular to turn into an embedded form of inflation.
“If everyone is at a cricket match and everyone stands up, nobody gets a better view.”
Governor Andrew Bailey highlighted the importance of looking at the MPC's overall predictions for interest rates.
“I think it’s important not to draw too much emphasis on whether we took a different view on the level [of interest rates] we expected to get to, as opposed to the pace by which we get there.”
He added that he also no longer thinks it is appropriate to use the word transitory to describe the current inflationary pressures.
“It was becoming a slightly overused, and in some circles, over-abused term and I think it is important to get more on the substance of the profile of inflation,” he said.