20/08/2014 05:56 BST | Updated 20/08/2014 06:59 BST

Bank Of England Rate-Setters Split As Two Back Interest Rate Rise

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Mark Carney, governor of the Bank of England, center, pauses during the bank's quarterly inflation report news conference in London, U.K., on Wednesday, Aug. 13, 2014. Carney pledged that Bank of England officials won't rush to raise interest rates as he highlighted overseas risks to Britain's recovery and the weakness of wages. Photographer: Simon Dawson/Bloomberg via Getty Images

Two Bank of England rate-setters have backed increasing interest rates from their historic 0.5% low, arguing that it could be done without putting the economic recovery at risk, it has emerged.

Ian McCafferty and Martin Weale, members of the Bank's Monetary Policy Committee, felt that "economic circumstances were sufficient to justify an immediate rise" by 0.25%, according to newly published minutes from the committee's meeting earlier this month.

This marks the first split vote among Bank rate-setters under governor Mark Carney, as the pair were out-voted by the other seven members of the committee to keep interest rates at their current level. The last time Bank rate-setters were divided over whether to increase interest rates was in July 2011.

The timing of the first interest rate rise, which would raise rates from the emergency low which has been in place since 2009, has caused controversy as it would push up the cost of borrowing and pile pressure on mortgage holders and businesses.


McCafferty and Weale argued that the continued fall in unemployment in the UK suggested that the growth in Britons' wage "would pick up" soon and that the Bank should anticipate this by raising interest rates.

They argued that any financial shock caused by the first rate hike could be greater, rather than lessened, by "delaying that increase".

The Monetary Policy Committee agreed that improving economic conditions meant that the necessity of low interest rates "would in time diminish" as the potential risks of higher rates lessened.

Carney has signalled that Bank officials would only raise interest rates once they have "the confidence that real wages are going to be growing sustainably", which has pushed back expectations for when the first rate rise could come to the next year. Previously some have estimated that the first rate hike could come as early as the end of this year.

The revelation that some rate-setters are starting to back an interest rate rise comes after several MPs accused Mark Carney of planning to keep interest rates at their historic low until after the next election in order to help George Osborne.

Teresa Pearce, Labour member of the Treasury select committee, told the Huffington Post UK that the Bank "must be free of political interference".

The Labour MP expressed concern that a view was beginning to take hold among some of her parliamentary colleagues that "interest rates are being kept low to advantage the Chancellor in the run up to an election".

"Since Mr Carney took his post, he has dangled the prospect of raising interest rates a number of times," she said. "He said once there were more people employed, that interest rates may rise. Well there are more, and they have not risen."

Pearce's comments make her the third MP to raise doubts about the Bank of England governor's messaging over when interest rates would rise.

Fellow Labour Treasury committee member John Mann said it was "abundantly clear" that Carney would raise rates "immediately" after the next election, while Tory MP Mark Field accused the Bank governor of following a "deliberate policy" not to raise interest rates.

Mark Garnier, Tory member of the Treasury select committee, told the City A.M. newspaper: “The Bank of England has to act independently, otherwise the whole thing becomes farcical – you get back to the worst case scenario where the chancellor is deciding rates covertly."

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However, David Ruffley, Tory member of the Treasury select committee, told HuffPostUK that the "conspiracy theory" was "all rubbish".

"How could he precommit to a certain posture on interest rates?" he said. "I don't think that's the way Carney would behave and I don't think he could professionally allow that to happen as he doesn't know what's going to happen to the British economy."

The chancellor announced Carney would take over from Mervyn King at the Bank of England in November 2012, praising him as the "best man" for the job

Carney's bias was previously questioned in January by Labour politicians after he dismissed the idea of a "crude" EU bank bonus cap and proposals to split up the big banks, both of which are ideas backed by the Opposition.

Some Labour MPs mocked him as Osborne's "hand-picked" Bank governor, while others, like former minister Michael Meacher, said he was a "neoliberal ideologue" chosen "because he shares in spades the free market deregulatory approach to which Osborne is such a fixed adherent."

Speaking to Channel 4 in November, Carney insisted he was his "own man" and was "absolutely independent".

He added: "I have my reputation to lose, and I will make sure -- I will do everything I can to make the series of right decisions."

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