Bank of England officials set to clash over interest rates in UK as they battle to keep economic recovery on track

Bank of England officials will this week clash over interest rates in the UK as they battle to keep the economic recovery on track.

The central bank’s nine-strong monetary policy committee meets on Wednesday and Thursday to set rates for the last time before the General Election.

The meeting at the Bank’s headquarters on Threadneedle Street in the heart of the City of London is likely to be fiery with senior figures at loggerheads over their next move.

Decision time: Mark Carney has insisted that the next move in interest rates is most likely to be up

Decision time: Mark Carney has insisted that the next move in interest rates is most likely to be up

Chief economist Andy Haldane surprised the markets last month when he said that rates could be cut even closer to zero having been frozen at a record low of 0.5 per cent since March 2009.

He said ‘the chances of a rate rise or cut are broadly evenly balanced’ as he cautioned against underestimating the threat of deflation.

Inflation has fallen to a 55-year low of zero – meaning prices have not risen in the last 12 months – and is expected to sink into negative territory this spring.

But other senior Bank officials – including Governor Mark Carney – have insisted that the next move in interest rates is most likely to be up.

Carney has even said it would be ‘extremely foolish’ to cut rates to counter a temporary period of low inflation or deflation caused by an uncontrollable fall in the oil price. Other MPC members have also waded into the debate – leaving Haldane isolated.

David Miles warned against a ‘knee-jerk reaction’ to low inflation and added that ‘it’s wise to hold your nerve and not to get panicked’.

Deputy Governor Minouche Shafik said ‘we shouldn’t change interest rates in response to something that is temporary’.

The Bank is widely expected to hold rates at 0.5 per cent again this week despite the threat of deflation.

Howard Archer, chief UK economist at IHS Global Insight, said: ‘The Bank of England will undoubtedly keep interest rates at 0.5 per cent. We remain strongly of the view that the next move in interest rates will be up.

He added: ‘We believe the odds favour the Bank hiking interest rates to 0.75 per cent in February 2016. Any interest rate hike could be delayed if there is prolonged political uncertainty after May’s General Election and this has a dampening impact on economic activity, particularly business investment.’

Oliver Kolodseike, an economist at Markit, said: ‘There are many reasons to believe that any increase in rates looks a long way off, despite the UK enjoying solid economic growth.

‘Wage growth is still muted by historical standards, the housing market is showing signs of cooling and uncertainty about the General Election is likely to deter policymakers from adding further uncertainty about monetary policy.’