Bank of England: Unanimous behind rate cut

Wednesday, 22 October 2008 10:31

The Bank of England's monetary policy committee (MPC) was united behind this month's half a percentage point cut in interest rates.

The decision came a day early a part of a global round of interest rate cuts from seven central banks including the European Central Bank and the Federal Reserve.

The minutes reveal the MPC saw "given the global nature of the financial market turbulence, there was a strong argument for participating in the proposed co-ordinated international action".

However, the MPC did admit the problems it face cutting rates.

"All developments pointed to the need for a relaxation in monetary policy. In the current financial market turbulence, the reduction in Bank rate that would ultimately be required to meet the inflation target was very difficult to gauge.

"But the evidence available now was clearly sufficient to justify a reduction in Bank Rate of 50 basis points this month."

The MPC also admitted: "The outlook for economic activity in the United Kingdom had deteriorated substantially."

The minutes come out after Bank of England governor Mervyn King admitted last night the UK was heading to recession.

Vicky Redwood, UK economist at Capital Economics, said: "October's MPC minutes echo the gloomy tone of Mervyn King's speech last night and suggest that the committee will continue to act aggressively in cutting rates.

"Not only did all members vote for the 50 basis points (bps) cut, but the discussion was unambiguously dovish. The case for leaving rates on hold (or indeed cutting by 25bps) wasn't even discussed, with the balance of risks to inflation judged to have 'shifted decisively to the downside'."

She added: "A November rate cut is looking pretty certain, with a good chance that it's another 50bps. And we see rates getting to 2.5 per cent or lower next year."

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