Interest rate rise more likely as MPC minutes reveal hawkish stance By Heather Stewart

Two of the Bank of England rate-setting committeee's nine members voted for a rise to 0.75% and one for a hike to 1%.

Arch-hawk Andrew Sentance has led the charge for higher interest rates. Photograph: David Levene for the Guardian.

 City expectations of an early increase in interest rates have received a substantial boost, with the news that two members of the Bank of England's monetary policy committee, including chief economist Spencer Dale, voted for a quarter-point rise in interest rates at their meeting earlier this month, while a third urged a half-point rise. 

 The unexpectedly hawkish voting pattern suggests policy could be tightened in the coming months if oil prices continue to soar as a result of the unrest in the Middle East.

 Even those, including Bank governor Mervyn King, who opposed an immediate increase, acknowledged that the hawks' argument "had grown in strength"; but said they preferred to wait and see before acting.

 "Given the potentially disruptive impact of reversing any immediate change in Bank Rate, there was merit in waiting to see indicators of how the economy performed at the start of the year to help assess whether or not the decline in GDP in the fourth quarter presaged sustained economic weakness. A rise at this juncture could damage household and consumer confidence, which remained fragile," the Bank of England MPC minutes say.

 Andrew Sentance, the hawkish independent economist, has led the charge for higher rates, voting for an increase every month since last June. He voted for a half percentage point rise at the February meeting. Martin Weale and Dale pushed for a quarter-point increase.

 One member, the American economist Adam Posen, was so concerned about the weakness of the economy that he continued calling for an extension of the Bank's quantitative easing policy, to stave off a double-dip recession.

 James Knightley at Global Economics ING says the minutes suggest a rate hike is unlikely before May, when the Bank publishes new economic forecasts. "So far the data has bounced back from December's weather related weakness, but with household spending constrained by negative real disposable incomes, falling house prices and constrained credit conditions, the prospect for growth remains poor."

 Decision-making on the nine-member monetary policy committee has come under intense scrutiny in recent weeks, with inflation running at 4% – double the Bank's target.

 The deep divisions on the MPC had already been laid bare last week, when the hawkish Sentance gave a hard-hitting speech, accusing his colleagues of "selling Britain by the pound," just a day after governor Mervyn King played down the need for an immediate rate rise at his quarterly inflation report press briefing.

King said a one-off increase, to placate critics in the financial markets, would be a "futile gesture"; but Sentance warned that the Bank would find itself "playing catch-up" if it failed to tighten policy rapidly.

 The dovish Posen responded with his own speech, urging his fellow rate-setters to ignore inflation "chatter". And while Sentance said he thought the projections in the Inflation Report were too pessimistic, Posen suggested inflation would actually turn out to be lower than forecast.

 Fresh evidence of the strength of the economy will come on Friday, when the Office for National Statistics releases its latest estimate of GDP in the icy fourth quarter of 2010. The first estimate shocked the Treasury by revealing a 0.5% contraction, and George Osborne will be hoping some of that will be rubbed out in the new calculation.

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