Third policymaker votes for rate rise

Spencer Dale becomes the third Bank of England policymaker to back an interest rate rise.

Spencer Dale is the latest member of the Bank of England's Monetary Policy Committee (MPC) to vote in favour of an interest rate rise, joining Andrew Sentance and Martin Weale.

The other six members of the MPC voted in favour of keeping the current 0.5 per cent rate but Dale's vote has increased speculation that an increase is on the horizon.

Dale and Weale both voted for increasing the rate to 0.75 per cent, with Sentance voting for a 1 per cent rate.

The minutes of the meeting revealed that, despite voting in favour of keeping the current rate, the other MPC members would consider an increase if new GDP figures were positive, following a 0.5 per cent drop between October and December.

The British Chamber of Commerce (BCC) described the news as "unwelcome" and argued that any increase would threaten the economic recovery.

However, with the Consumer Prices Index rising to an annual rate of 4 per cent in January and inflation rising, the feeling in the MPC appears to be shifting towards favouring an increase.

David Kern, the BCC's chief economist, told the BBC that a swift reaction by the Bank of England would be unwise in the face of the government's austerity measures.

Kern said: "While we accept that interest rates will have to increase later in the year, we believe the MPC should wait until the economy has absorbed the initial impact of the Government's deficit cutting plan."

Speaking to BBC Radio Bristol, Paul Tucker, deputy governor of the Bank of England, said: "The question we face isn't to make a violent increase in interest rates, it's whether or not to take away just a little bit of the stimulus that we've been applying to the economy over the last few years. This is a delicate balance."

Tucker stressed that the Bank of England's job was to bring inflation back down to 2 per cent, admitting that the Bank faced a "real dilemma" over how to handle interest rates in the coming months.