mpc.theyserveforyou.com

mpc: 9 expected to remain below the 2½% target for some time. Sterling had strengthened further, and some thought that it might rise even more, which would help to restrain prices. So too might structural changes in the economy over a number of years, perhaps reflecting stronger global competition and greater price sensitivity of consumers as a result of the enhanced price transparency brought about by Internet use. It was plausible that the growth of business-to-business e-commerce would lead to a significant reduction in costs. Average earnings might rise further in coming months, but this would partly reflect one-off factors such as bonuses; it would be important also to look at settlements data, as well as further micro-economic evidence on margins and productivity. It was also suggested that if the neutral level of real interest rates were around 3%, as some historical work suggested, and inflation expectations were firmly anchored at 2½%, a neutral nominal rate would be around 5½%. Given the strengthening of the world economy and many of the determinants of UK consumption it was appropriate for monetary policy to be tighter than neutral at present, but not by a great deal, especially given the strength of sterling, and this justified a 25 basis point increase in the repo rate. 32 On another view, an increase of 50 basis points was needed now. The recovery in the world economy and the remarkable strength in the principal determinants and indicators of consumption ­ such as real wages, secured and unsecured credit to households, wealth, and consumer confidence ­ suggested that in the absence of a tightening in monetary policy GDP would continue to grow above trend. Against this background the slowdown in final domestic demand in Q3 might well prove to be erratic. Given the strength of nominal earnings growth, it seemed likely that, in the absence of a stronger exchange rate, significant further improvements in productivity growth, or an intensification of the squeeze on margins, greater upward pressure would be placed on inflation in the medium term, even though at present RPIX was rising at less than 2½%. An increase in rates of 25 basis points had been needed last month, and given developments since then more was needed now. The arguments for waiting a further month, for more data and the analysis underlying the February Inflation Report, were insufficient reason for delay: an increase of 50 basis points in the repo rate was required this month. 33 The Governor invited members of the Committee to vote on the proposition that the Bank's repo rate be increased by 25 basis points to 5.75%. Eight members of the Committee (the Governor, Mervyn King, David Clementi, Charles Goodhart, DeAnne Julius, Ian Plenderleith, John Vickers and Sushil Wadhwani) voted for the proposition. Willem Buiter voted against, preferring an increase of 50 basis points.