The Bank of England has a tough decision to make over interest rates, and opinions are divided

It’s been a pretty dull month in terms of economic releases but one of the most interesting developments in the last month has been the split in the Bank of England’s monetary policy committee.

At its meeting in February, three of the committee’s nine members voted to increase interest rates. One of these, Andrew Sentance, even voted for an increase of 0.5%, rather than the traditional 0.25% increment, while one member voted for virtually the opposite. Adam Posen voted to increase the Bank’s quantitative easing policy by £50bn, taking it to £250bn.

Since the cuts, contractors have yet to hit out and say what must be on their minds

Despite Posen’s lone voice, it would seem that an interest rate increase is on the cards - the question is when. But it’s not that simple. At present, the economy is on a knife edge. In the Bank of England’s words: “Even after making allowance for the probable impact of the adverse weather conditions, growth had slowed during the second half of 2010. That apparent weakness could prove temporary but could also be an early signal of a worsening outlook for growth and hence medium-term inflation.”

The Bank of England has also been in the news recently after its governor, Mervyn King, blamed bankers for the government spending cuts. Appearing in front of the Treasury select committee, King said: “The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid. I’m surprised that the degree of public anger has not been greater than it has.”

Those in the construction sector also appear to be biting their tongues. Since the cuts were announced last year, contractors have been winding down their exposure to government spending but have yet to hit out and say what must really be on their minds. When the cuts start to bite hard, this may change.

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