The Bank of England's Monetary Policy Committee considered using a half point interest rate increase as a shock tactic earlier this month it was revealed today.
The minutes of their talks released today showed members were not certain that domestic demand would ease as markedly as projected and that this posed an upside risk to its central projection. “… the surprise entailed by a 50 basis point increase might help to moderate the continuing rapid rate of increase in consumer indebtedness by affecting the behaviour of both borrowers and lenders, although even a 50 basis point rise would not by itself dampen consumer borrowing to any marked degree,” the minutes said.
In the result, members voted 9-0 to raise interest rates by just 0.25% to 4.25% even though the central forecast on the economy suggested that interest rates might need to rise more rapidly than currently expected by the market, at some point.
The committee said that in making a discussion to raise rates it was important to make it clear this did not imply that it was targeting house price inflation, or any other asset price.
The minutes said the significance of the unexpected acceleration in house prices was that it “supported a stronger short-term outlook for consumption and output growth, and hence a steeper projected rise in inflation.”
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