Britain’s rate-setting committee voted to keep interest rates at their record lows of half a percentage point on Thursday and to allow the existing programme of gilts purchases to come to a halt, as was widely expected.
Minutes of the April meeting of the Bank of England’s Monetary Policy Committee had highlighted growing concern among members that inflation may prove stickier than had been believed earlier in the year and that getting it down to the 2 per cent medium-term target by year-end may be more difficult in light of rising oil prices.
That view was strengthened by comments from the most vocal supporter of further gilts purchases on the MPC, external member Adam Posen, who signalled that he did not believe additional stimulus was warranted.
The latest reading of CPI inflation showed the first rise in five months in March, up to 3.6 per cent, mostly reflecting the effects of a sharp rise in oil prices at the start of the year.
Measures of broad money that are closely tracked by the MPC have shown signs of a pick-up, according to the most recent BoE data.
The MPC minutes suggested members were influenced by repeated industry surveys showing that even if official measures of growth have been weak, businesses continue to report reasonably robust growth in orders and are continuing to hire workers.
However, in recent weeks, economic signals have been much weaker.
The UK fell into a technical recession in the first quarter, according to official data, while surveys of retail activity and housing showed greater weakness than expected.
Moreover, the eurozone has fallen into recession and political instability following elections in Greece and France has heightened concerns about the region’s banking sector.