Bank was unanimous on rate cut

The MPC was united in its decision to cut rates

The Bank of England's Monetary Policy Committee voted unanimously to cut interest rates by 0.25% in February.

According to the minutes of their meeting released on Wednesday, some members of the MPC even considered cutting the key interest rate by 0.5%.

They decided, however, to take a gradual approach, preferring to wait and see if a larger cut would be necessary.

[The] minutes are dovish enough to hold out hope of another ease next month

Jeremy Hawkins
Bank of America

The MPC also thought a larger cut "might perversely damage confidence" by misleading financial markets, households and companies about its assessment of the UK economic outlook.

The 0.25% cut to 5.75% on 8 February was the first reduction in UK interest rates for nearly two years.

The Bank of England believed that UK business confidence could have been at risk without a cut.

Hopes of a further cut

MPC members also agreed that a weaker pound could bring the underlying inflation rate back to a target of 2.5%.

"The minutes reveal that the Bank shares business concerns that the inflation target has been undershot by too much and for too long," said Ian Fletcher, chief economist at the British Chambers of Commerce.

The Bank concludes that it needs to see how consumer and business confidence in the US will react to interest-rate cuts by the Federal Reserve, and how this will affect the UK.

In light of any developments, the MPC has kept the need for a further cut in rates "under review".

The reduction in interest rates was anticipated by analysts, who believed that the threat of a slowdown in the UK economy had risen sufficiently to warrant it.

"[The] minutes are dovish enough to hold out hope of another ease next month," said Jeremy Hawkins of Bank of America.

"The committee's unanimous decision is a clear indication that further cuts in interest rates are firmly on the horizon," added Mr Fletcher at the BCC.

Budget concerns

Mr Fletcher also warned against too many tax cuts in the 7 March budget.

"It is critical that the Chancellor takes a neutral fiscal stance in the forthcoming Budget so that further strains in the economy are avoided, and to ensure full scope for the Bank to cut interest rates."

The UK's public finances recorded a surplus of £16.7bn ($24.1bn) in January, according to data released on Tuesday by the Office for National Statistics.

Analysts think the surplus for the whole year might top £15bn - allowing the Chancellor, Gordon Brown, scope to give away between £2bn and £5bn in the budget.

Peers call for transparency

Earlier on Wednesday, the House of Lords called for greater transparency in the appointment of MPC members.

The Lords also want the MPC minutes to provide an executive summary containing comments by the individual members explaining their votes.