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Bank voted 7-2 for rate hold

21/11/2007

The Bank of England's monetary policymakers voted by seven to two to keep interest rates on hold this month, it has emerged.

Minutes from the latest monetary policy committee (MPC) meeting show the bank's deputy governor John Gieve joined arch dove David Blanchflower in voting for the UK's benchmark interest rate to be cut from its current level of 5.75 per cent.

But other committee members present at the discussions – held on November 7th and 8th – felt, despite the current turmoil on the financial markets, a rate cut was premature given the inflation risk posed by the rising cost of oil and other commodities.

Those who voted for interest rates to remain on hold said evidence the ongoing global credit crunch was impacting significantly on household or business activity remained "limited".

"Moreover, since a reduction in bank rate was not widely expected this month, there was a danger that an immediate cut would be misinterpreted, precipitating an unwarranted further fall in the market yield curve," the minutes stress.

However MPC members acknowledged the apparent slowdown in housing market activity - following past interest rate rises - and muted pay growth, coupled with the continuing turbulence on the financial markets, supported arguments in favour of a rate cut.

But the committee opted to maintain a wait-and-see policy after weighing up all the arguments and voted to keep interest rates on hold.

Nonetheless analysts are anticipating a rate cut over the coming months in response to an expected slowdown in economic activity.

Global Insight chief economist Howard Archer said the likelihood of a reduction in the cost of borrowing as early as December would depend on how weak economic activity indicators were over the next couple of weeks.

"Given that the MPC believes that some slowdown in growth is necessary to dilute underlying inflationary pressures, a majority of MPC members will probably want to see clear evidence of a significant slowdown before sanctioning a rate cut," he explained.