Bank hawkish despite 9-0 MPC vote for rates freeze

The Bank of England struck a hawkish tone today amid mounting fears over the threat of inflation.

Minutes from this month's meeting of the monetary policy committee highlighted "upside risks to inflation" such as the rising oil price.

Figures also showed wages rose by 2.3% in the three months to February, up from 0.8% in the previous three months, following the return of City bonuses.

It came a day after the Office for National Statistics said inflation jumped from 3% in February to 3.4% in March — far higher than expected and well above the 2% target.

Economists warned the Bank may be forced to raise interest rates before the end of the year to bring inflation back under control. Rates have been at a record low of 0.5% since March last year.

Howard Archer of IHS Global Insight said: "The possibility of an interest rate hike before the end of the year does appear to have risen."

The minutes showed that the recent rise in inflation "was a source of concern to some members" of the MPC despite expectations it will fall back towards target later this year. The Bank said: "There was a range of views about how the balance of risks to inflation and activity had altered over the past few months."

All nine MPC members eventually voted to leave rates at 0.5% and hold its efforts to boost money flowing through the economy at £200 billion.

Philip Shaw of Investec said: "For now, the decisions remain clear cut, but we expect this to change as the recovery unfolds and we begin to get more of a debate over when it is appropriate to increase interest rates."

James Knightley of ING said: "The minutes have a hawkish tone. Nevertheless, we continue to favour the first rate hike coming in early 2011."