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Wednesday, September 16, 1998 Published at 11:21 GMT 12:21 UK

Business: The Economy

Bank committee split over rates

The Bank of England is under pressure to cut rates

Just two of the Bank of England's Monetary Policy Committee's nine members were against keeping rates on hold in August, according to the minutes of their meeting.

The MPC, which has responsibility for setting interest rates, voted 7-2 in favour of keeping rates unchanged at 7.5% last month.

It also voted to hold rates at its September meeting, though the minutes of that meeting will not be published until next month.

[ image: Bank governor Eddie George voted to keep rates on hold]
Bank governor Eddie George voted to keep rates on hold
The August minutes showed that the committee took into account international economic events, official data showing a slowdown in UK demand and industrial growth.

Among the arguments in favour of leaving rates unchanged were a slowdown in activity and demand broadly in line with earlier forecasts.

High rates are used to keep inflation under control and the minutes show that members were still carefully weighing up whether or not inflation had peaked.

"In sum, given that inflation was forecast to be close to the target in two years' time and that the outlook beyond then was highly uncertain, the committee could sensibly wait to gather more information before concluding that policy needed to be changed."

Markets volatile

The committee met before the recent stock market turmoil triggered by the Russian economic crisis and Wall Street's wobble in response to the Starr report on President Clinton and worries of an international economic downturn.

Since it met in August, there has also been a raft of new data pointing to a further slowdown in the UK economy, including inflation figures out this week which showed that the underlying rate had dropped to 2.5%, in line with the government's target.

Those voting in favour of keeping rates unchanged were: Bank of England Governor Eddie George, Mervyn King, David Clementi, Alan Budd, Charles Goodhart, Ian Plenderleith and John Vickers.

Only one member of the committee, Willem Buiter, was in favour of raising rates, arguing that the long-term outlook for inflation was for it to remain above the target level.

DeAnne Julius was the only member in favour of an immediate cut in rates, arguing that the downturn in the economy was the result of rate rises a year ago.

Fears of hard landing

Although the downturn has been moderate so far, more recent rate rises are still to take effect and there are "ominous signs" that the slowdown in output is about to steepen, said the minutes.

Marian Bell, head of treasury research at The Royal Bank of Scotland, said the significance of the August minutes had been overturned by subsequent developments.

She added that there was growing evidence the committee "will and should" cut rates soon.

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