9:1 majority for rate freeze: minutes of MPC meet |
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Fri, 20 May 2005 16:00
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The Bank of England’s Monetary Policy Committee now has only one member voting for in increase in base rate, which makes an increase even less likely next month.
According to the minutes of this month’s MPC meeting, there was an eight-to-one vote to keep borrowing costs unchanged for the ninth month in a row. The previous month there was a seven-to-two vote for a hold. It is believed that Paul Tucker, the Bank’s chief of markets, later decided to stop pressing for an increase in interest rate this month, making it a 9:1 vote for rate freeze.
Mr Tucker, who was yesterday reappointed for a further 3-year term, had previously sided with Sir Andrew Large, the Bank’s deputy governor, in demanding a rise in base rate. He switched his vote after considering pressures from diverse factors.
| The change in Mr Tucker’s stance reflects the Bank’s situation faced as it is with the dilemma of having to keep interest rate unchanged despite the recent rise in inflation. Sir Andrew was the only MPC member who continued to demand higher rates. He argued that higher borrowing costs might help in restraining the surge in household debts.
Conflicting pressures such as a slowdown in consumer spending and growth in inflation rate are compelling many economists to revise their forecasts for the year. A senior economist said Chancellor Gordon Brown would be widely off the mark in his growth forecasts. In his March Budget, Mr Brown had predicted 3 and 3½ per cent economic growth, whereas the MPC believes there is more than a 50 per cent chance that the economy will grow by less than 2.6 per cent.
Since the minutes of the May meeting were released, a large number of economists felt that interest rates have peaked and the next movement could be downwards. Among the points discussed at the meeting, the rapid downturn in consumer demand featured as the dominant topic, followed by the likelihood of inflationary pressures building up.
Although the Bank is inclined to believe that the slowdown on High Street will not last, most members worried that it might take longer to resume its upward movement.
The minutes quoted one member as saying holding rates this month was justified by near term risks, but the MPC would remain ready to act according to inflationary pressures.
Mr Tucker and Sir Andrew had been the two votes for a rise in borrowing costs at the MPC’s meetings in February, March and April.
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