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Wednesday, 15 August, 2001, 10:10 GMT 11:10 UK
Bank split over rate cut
The Bank of England
The Bank's Monetary Policy Committee voted six-three for a rate cut
The Bank of England's surprise cut in interest rates earlier this month was approved by a six-to-three majority, minutes from the rate-setting meeting have revealed.

The Bank's two deputy governors, Mervyn King and David Clementi, as well as Iain Plenderleith voted against the 0.25% cut in the base lending rate.

The minutes show that the Bank's rate-setting body, the Monetary Policy Committee (MPC), was aware that a rate cut could worsen the imbalances in the economy between struggling manufacturers and the buoyant consumer sector.

But a rate cut was seen as providing "a degree of insurance against a further deterioration in the outlook" for the UK's economy.

"The six-three vote is tighter than we expected and explains why the Bank of England had said the decision to cut rates earlier this month was difficult," said Philip Shaw at Investec.

Surprise cut

At the start of August, the Bank of England stunned many economists by cutting the base lending rate from 5.25% to 5%.

It was the fourth rate cut this year, and took the lending rate down to its lowest level for two years.

The Bank has been faced with the problem that the UK's manufacturing sector is now in recession, but domestic spending is still healthy.

Among the arguments put for not cutting rates at the MPC's meeting was that "an immediate cut would exacerbate the imbalances in the economy".

But against this it was argued "the pressures on the corporate sector represented a greater risk to the outlook than the apparently buoyant conditions in the household sector".

There was even a hint that some MPC members don't expect the strength of the consumer sector to continue.

"While some of the indicators of consumption currently remained strong, the most likely outlook remained for consumption growth to slow," the minutes said.

The Bank's quarterly inflation report released last week gave a gloomy forecast for the UK economy.

It admitted it had been surprised by the speed of the slowdown in parts of the UK economy, and said there remained a "downside risk" that the global economic slowdown could worsen.

Unemployment keeps falling

There were signs on Wednesday that the UK's economy is resisting a downturn.

The latest unemployment figures showed the number of people out of work and claiming benefit falling again, to reach the lowest level for at least 25 years.

The number of Britons claiming unemployment benefit fell 12,800 last month to 950,300.

Inflation slowing

On Tuesday, the latest price figures showed inflation slowing faster than expected.

The underlying inflation rate was 2.2% in July, 0.2% lower than in June.

Economists said the numbers seemed to show the Bank had been right to cut rates in earlier this month, and raised the prospects of further cuts.

See also:

15 Aug 01 | Business
UK jobless shows surprise fall
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