The forward guidance policy issued by Bank of England governor Mark Carney failed to get the full backing of the Bank's monetary policy chiefs, it has been revealed.
One committee member, Martin Weale, refused to back the bank for its lax inflation controls.
The Bank's Monetary Policy Committee's members voted 8-1 to link interest rates to unemployment, according to minutes released today about its August 1 meeting.
Although Weale backed the forward guidance policy, he chose to vote against the policy as he wanted the Bank to adopt a tougher stance to manage inflation if it continued to defy the Bank's 2% target.
Carney's forward guidance tied increasing interest rates to a benchmark of unemployment hitting 7%, with the caveat that it would not happen if inflation was predicted to be over half a percentage point above the 2% inflation target in the following 18-24 months.
Weale wanted the period for that 'inflation knockout' to be shorter as a way of policing inflation more firmly.
Michael Jarman, head of equity strategy at H2O Markets, explained: "Carney has made it clear from when he took office that he's willing to run higher inflation on the basis of helping out with the wider economic picture.
"Weale doesn't like inflation so of course he's going to be more hawkish on the matter and say 'Look, I'm happy for you to run a higher inflation rate but get unemployment down a lot sooner please'. "
Inflation has consistently hovered near 3% for over three years, with CPI sinking to 2.8% in July.
The Bank's minutes read: "One member of the Committee (Martin Weale), while supportive of the adoption of forward guidance, voted against the proposition in order to register his preference for a time horizon for the first inflation knockout that was shorter than proposed"
Jeremy Cook, chief economist at the foreign exchange company, World First, said:
“Carney has missed out on getting a unanimous vote by one vote as Martin Weale decided that, while forward guidance is a plan he is happy with, the inflation caveat needed to be more short-termist, i.e. if pressures were seen sooner than the 18-24 months that we have eventually been given.
"This is a nod to the Bank’s mandate as an inflation controller – not that it means much at the moment, given they have not been within driving distance of target for a long time.
The Bank of England doesn't predict unemployment to hit the 7% threshold until the end of 2016, at earliest.
Bank chiefs also voted unanimously to keep its quantitative easing programme at its current level of injecting £375 billion of fiscal stimulus into the economy, and to keep interest rates at their historic low of 0.5%.
After the Bank published its minutes, the pound rose 0.3% to $1.5482.Suggest a correction