Members of the Monetary Policy Committee (MPC) voted unanimously to maintain the UK base interest rate at 4.5% earlier this month.
Minutes published by the Bank of England show that the nine committee members , including Bank governor Mervyn King, see significant inflationary risk from the ongoing price of oil.
In dollar terms the price increased by 5% since the previous meeting of the Committee, the minutes note, leaving oil at twice the price of a year ago.
Although there is a downside risk to the economy of weak consumption and business investment both here and in the eurozone, this is offset by the continued strong performance of the stockmarket, while inflationary developments through August were seen to be in line with the Bank’s inflationary outlook.
Thus, the oil price and the risk of higher energy prices being fed through to wider areas of the economy in the form of secondary price rises tipped the balance for Committee members.
”Inflation expectations appeared to be well anchored, though there was no room for complacency,” the minutes state.
The minutes also noted that figures published in July showed the consumer price index suggesting an annualised inflation rate of 2.3%, which is above the Bank’s 2% target, and well up on the rate of 1.1% recorded in September last year.
Energy has to bear a large responsibility for this, as other figures showed that manfacturers’ output prices were up 3.1% (excluding duties) on an annualised basis. Stripping out the price of oil suggested such inflation was up by just 1.5% over the year.
Wage inflation remains ‘soft’, the minutes state, as the UK labour market has seen a slight drop-off in the increases demanded compared with the first quarter this year, while there is an “effect of inward migration of workers, particularly from other European countries.”
Throwing in some concerns about the state of the global economy, and of key export partners such as the US – mainly because of the unkown effects on that economy of hurricane Katrina – and MPC members decided to stay their hand either way.
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