Bank of England split over rate cut
The Bank of England's Monetary Policy Committee voted 6-3 to cut interest rates by a quarter-point this month, minutes from its meeting two weeks ago revealed on Wednesday.
Many had expected a unanimous vote in favour of a cut and experts say the news cast doubt on speculation of another reduction as soon as next month.
Six committee members, including Bank of England governor Mervyn King, voted for a reduction to 5%, while David Blanchflower called for a bigger cut and Andrew Sentance and Timothy Besley wanted no change due to inflation pressure from soaring oil costs.
"In order to avoid (...) undershooting the inflation target in the medium term, it was necessary to offset, partly but not wholly, the current and prospective downward shift in demand arising from the deterioration in global credit conditions and its consequences," said the majority of members.
"A reduction in Bank rate now would also reduce the tail risk of an unexpectedly sharp slowdown in demand later in the year."
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Postponing such a move "might then require a more vigorous policy response", the committee added.
Blanchflower, who called for a half-point cut, said the bank should "look through the near-term increase in inflation, which was likely to be short-lived."
Besley and Sentence argued that "it was likely that bank rate would need to be reduced at a measured pace, but recent economic news did not justify a reduction."
In a speech to the Canada-UK Chamber of Commerce in London yesterday, Besley also said that monetary policy should concentrate on managing inflation levels, not lessen the impact of the downside shocks to the economy.
