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BoE deputy Tucker almost voted for rate rise

by: IFAonline
  • 29/06/2011
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BoE deputy Tucker almost voted for rate rise
There are clear signs of a rift within the MPC over interest rates as deputy governor Paul Tucker said he is close to voting for a rise.

This would put him at loggerheads with governor Sir Mervyn King, according to the Telegraph.

A vote for higher rates from Tucker, widely considered the favourite to succeed Sir Mervyn in 2013, would be a key turning point after rates have been at 0.5% for so long.

Economists believe he would take other members of the Monetary Policy Committee (MPC) with him, while sending a clear signal to markets the era of historically low rates is over, the Telegraph reports.

His comments to the Treasury Select Committee (TSC) came as the Office for National Statistics (ONS) revealed families are under greater pressure than at any time in the past 34 years.

Real disposable incomes in the first quarter of the year fell 2.7% compared with 2010, the ONS said, as inflation outstripped wage growth.

In evidence to the TSC, Tucker launched a surprise attack on his colleague Adam Posen over the Bank for International Settlements’ (BIS) recent observation that rates need to rise sooner and faster than expected.

Posen, the MPC’s most dovish member, described BIS’s analysis as “nonsense”. but Tucker said it should not be “cast aside”.

“I am one of those who from the back end of last year has worried about the possibility of an upward drift in inflation expectations. So far those risks haven’t crystalised, although the evidence is mixed,” Tucker said.

“The longer inflation remains so high, the more likely it is that when we say that it’s a one-off factor the people of this country will think; ‘they use one-off event in a completely different way from anyone normal’.

Two members of the MPC are already calling for higher rates and the committee is believed to have been on the brink of voting for a quarter-point rise in February before the GDP data showed the economy shrank at the end of 2010.

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