The minutes from the meeting, held on 4 and 5 February, read: “Were the upside risks to underlying inflationary pressure to materialise, it would be appropriate for Bank Rate to increase more quickly than embodied in current market yields [at the time of the meeting] – the likelihood remained that any such increases would still be more gradual and limited than in previous tightening cycles.”
Commenting on yesterday’s news that inflation dropped to 0.3% in January, Mark Carney said that there was a likelihood inflation would fall further potentially turning negative in the spring and be close to zero for the remainder of the year.
But the Bank is predicting a sharper upwards recovery in the inflation rate and still believes the measure will reach its 2% target on a two-year time horizon.
The minutes revealed that all members viewed it as more likely than not that Bank Rate would increase over the next three years.
For one member, the next change in the stance of monetary policy was roughly as likely to be a loosening as a tightening.
During the presentation of the inflation report on 12 February, Mark Carney said that should current downward slide in inflation worsen materially then a further cut in the Base Rate was not out of the question.
The MPC’s minutes reported that the scope for lowering the Base Rate was partly due to the UK banking sector now operating with substantially more capital than in the immediate aftermath of the crisis.
The minutes read: “Reductions in Bank Rate to below 0.5% were therefore less likely to have undesirable effects on the supply of credit to the UK economy than previously judged by the MPC.”
