THE Bank of England’s monetary policy committee (MPC) holds its first meeting of the year this week amid financial-market jitters about higher interest rates.

While most analysts expect the Bank to leave base rate unchanged at 5%, they have not ruled out the possibility of a pre-emptive hike.

According to a survey by Ideaglobal.com, the financial-research company, there is a 15% probability of a rate rise this week. However, Barclays Capital warned that this underplayed the risk. It said the probability of a rate rise was closer to 30%.

The “shadow” MPC, which meets under the auspices of the Institute of Economic Affairs, says there is no reason for the Bank to delay. Its e-mail “meeting”, carried out at the end of last week, voted 5-4 in favour of raising rates now.

Four of its members voted for an immediate quarter-point hike, one voted for a half-point increase, three said Bank rate should remain on hold and one favoured a quarter-point cut.

Roger Bootle, economic adviser to Deloitte, said the Bank should hike to 5.25% to clamp down on inflation. Tim Congdon, visiting fellow at the London School of Economics, favoured a similar move.

Ruth Lea, director of the Centre for Policy Studies, and David Smith, visiting professor at the University of Derby, also said the rate should rise to 5.25%, partly as a warning shot to pay bargainers.

Gordon Pepper of Lombard Street Research said a half-point rise was needed.

Of the three who said rates should stay on hold, one, John Greenwood of Amvescap, favoured a hike next month. The two others, Kent Matthews of Cardiff Business School and Peter Warburton of Economic Perspectives, had no “bias” to hike.

Patrick Minford, also of Cardiff, voted for an immediate quarter-point cut and said his bias was towards further reductions.

The split on the shadow MPC echoes the disagreements on the actual MPC and differences in City opinion on the outlook on interest rates. Some argue that Bank rate will be heading up to 6% by the end of the year while others argue that it will be falling to 4%.