Banking News Split MPC Vote Raises Hopes For April Interest Rate Cut 1278

Split MPC vote raises hopes for April interest rate cut

20 March 2008 / by Joy Tibbs
The minutes from the Monetary Policy Committee(MPC) meeting held March 5-6 reveal that the decision to keep rates at 5.25 per cent was not unanimous. This has fuelled hopes that an interest rate cut may be introduced in April.

Two of the nine MPC members – deputy governor John Gieve and David Blanchflower – voted against the decision to keep rates at 5.25 per cent, preferring a 0.25 per cent cut. However, they were overruled by the governor (Mervyn King), Rachel Lomax, Kate Barker, Charles Bean, Tim Besley, Andrew Sentance and Paul Tucker.

“For the majority of members, despite some differences in their assessments of the risks, the balance of risks had not changed sufficiently to merit a change in Bank Rate this month,” say the minutes.

“The committee would continue to review the balance of risks to inflation, and its implications for the appropriate level of Bank Rate, as it received new information each month about the economic outlook and the uncertainties around it.”

However, the minutes show that this decision did not convince all committee members. Deteriorating conditions in the US economy and “stressed conditions” across global financial markets caused the two members to go against the grain. They claimed these factors “increased the downside risk to UK growth in the short term and to inflation further out.”

The MPC decision was based on developments in the international economy, money, credit, demand and output, and costs and prices. However, although it perceived that “sentiment in international credit and money markets appeared to have deteriorated over the month”, it did not see fit to reduce the base rate.

Nevertheless, it is hoped that the US Federal Reserve (Fed) decision to cut rates by 0.75 per cent to 2.25 per cent on Wednesday may prompt the MPC to follow suit in April. The next committee meeting will be held April 9-10 and the minutes will be published on April 23.

The bosses of major UK bosses are to meet Mr King today to urge him to confirm that Bank of England funding is available for those that experience a cash shortage. Banks are concerned that creditors may lose confidence in the UK financial system, reducing lending between banks. Fears are even greater following yesterday’s rumours of a possible HBOS collapse, which have since been proved unfounded.

© Fair Investment Company Ltd

Written by Editorial Team