The "MPC-ometer" predicted an average interest rate vote of +14 basis points in March, up from +8 bp in February and just above the +12.5 bp threshold suggesting a rate increase – see previous post. In the event, the average vote was unchanged at +8 bp (counting Adam Posen's QE2 proposal as equivalent to a 25 bp rate cut).

The March minutes reveal that wavering members were concerned about economic weakness and unconvinced that inflationary expectations were becoming detached from the target. More recent news on these issues has been mostly hawkish.

Services and industrial output – accounting for 93% of GDP – rose strongly in January to stand 0.7% above the fourth-quarter level. The services recovery is more than a temporary bounceback, judging from upbeat business surveys – not just today's PMI but also the EU Commission business / consumer services survey released last week and yesterday's CBI financial services poll. GDP was held back in January by a further fall in construction output but this reflects carry-over from December's bad weather disruption and should be reversed.

On inflation, the Barclays survey reported a further rise in both short- and longer-term inflationary expectations in the first quarter, confirming the Bank of England's own poll (to which the MPC had early access at its March meeting). CPI and RPI figures again exceeded the consensus forecast in February, business survey pricing plans remain strong while pay settlements averaged 2.6% in the three months to February, up from 1.5% a year before, according to research firm Incomes Data Services.  

Policy shifts abroad could be a key factor tipping the MPC towards tightening. As of yesterday, sterling's effective rate had fallen by 1.9% from the starting level assumed in the February Inflation Report, partly as a result of the ECB signalling an interest rate increase despite seemingly lesser inflation difficulties than in the UK. Recent strong US economic news could result in the Federal Reserve also shifting tack, risking a further slide in the pound with attendant inflationary implications if the MPC continues to stand pat.

The MPC-ometer has moved further in a hawkish direction this month, predicting an average interest rate vote of +16 bp, consistent with six members favouring an increase (assuming that Andrew Sentance continues to vote for 50 bp while Adam Posen maintains his dovish dissent). It must be admitted, however, that MPC communications have not suggested an imminent change in the current stalemate while proximity to the Budget may incline some members towards further delay.