“The Bank of England’s MPC left UK interest rates at 3.75%, as expected, but the 6–3 split was more hawkish. The news is that Catherine Mann has joined Megan Greene and Huw Pill in voting for an immediate hike.

“In short, she now agrees with the others that higher rates are needed to restore credibility, given the persistence of the energy price shock, the long period of above-target inflation, and elevated inflation expectations.

“This is a reasonable position to take. Inflation has been above two per cent every month for nearly two years and is unlikely to return to target for at least another year.

“Meanwhile, activity has proved unexpectedly resilient and the labour market seems to be stabilising. This lessens the risk that an unexpected rate rise would push the economy into an unnecessary recession.

“A small rate rise now could send a clear signal that the Bank is determined to prevent inflation from spiralling out of control again. It would also be preferable to larger increases later — a case of ‘a stitch in time saves nine’.

“The MPC appears, rightly, to be giving little weight to the government’s attempts to massage headline inflation down with measures targeting individual prices, such as taking VAT off electricity bills. Any impact here would only be temporary and swamped by other factors.”

On the case for holding rates, he added:

“Nonetheless, the majority view that rates should be held made sense too. If anything, the case for raising rates to protect credibility has weakened since the last meeting.

“There is still no sign of significant second-round effects from the surge in energy prices. Inflation expectations have fallen slightly, private sector wage growth continues to slow, and strong competition is holding down shop prices.

“Broad money growth remains too weak to fuel a sustained rise in inflation, while higher market interest rates are already leading to a tightening in financial conditions.”

On the outlook, he concluded:

“The upshot is that the decisions at the next few meetings are also likely to be finely balanced.

“The Bank is perhaps a step closer to hiking rates in the autumn, but this is still not nailed on. The combination of subdued money growth and the power of market forces should keep both inflation and interest rates down.”