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Wednesday, 17 October, 2001, 16:04 GMT 17:04 UK
Bank supremos united on rate cuts
The Bank of England
Bank of England: Would consider further cuts
The Bank of England chiefs who decide on interest rates were unanimous on the need for a cut in the wake of the 11 September terror attacks.

The minutes suggest the chances of a further rate cut are quite high

Mark Cliffe, ING Barings

Some members of the Bank's rate-setting Monetary Policy Committee (MPC) even favoured a half point cut to stimulate Britain's flagging economy, minutes released on Wednesday revealed.

As it was the MPC, at an emergency meeting on 18 September, voted for a quarter point reduction, despite calls by Sushil Wadhwani and a second outside expert, Christopher Allsop for more robust measures.

On 4 October, at the committee's next scheduled monthly meeting, eight out of nine members, including governor Sir Edward George, voted for a further cut, from 4.75% to 4.5%.

Mr Wadhwani again called for a full half-point reduction, the minutes showed.

Room for further cuts?

The MPC has cut interest rates six times so far this year.

Governor Sir Edward said on Tuesday that the Bank would consider cutting rates still further to protect growth if statistics suggested a rising threat of recession.

In its minutes, the MPC noted that even before the terror attacks on the US, "the outlook for the world economy had weakened by more than expected".

In Britain, the committee warned that the labour market appeared to have reached a "turning point" and that the prospect of rising unemployment was likely to depress consumer spending which had been keeping the economy afloat.

A raft of economic data released this week will add to pressure for further rate cuts.

Average earnings growth was 4.5% last month, figures revealed, 0.1% slower than in August, in line with Bank of England forecasts.

Retail price inflation also slowed sharply in September, with the headline rate, which includes mortgage interest payments, standing at 1.7%.

The underlying rate fell below the government's 2.5% target.

But figures released on Wednesday showed a surprise fall in the headline rate of unemployment.

The number of people claiming unemployment benefit fell by 4,900 last month to 942,100, although the number of jobless people not claiming benefits rose.

Analysts' reaction

Reacting to the MPC minutes, Stewart Robertson, of Lombard Street Research, said he had been surprised by the apparent unanimity of the October meeting.

"The note they put out at the time suggested that some minor disagreements.

"The only disagreement they came up with was the scale of the reduction."

Philip Shaw, of Investec, said: "The minutes showed that the Bank of England was particularly concerned about the effects on business confidence from the attacks of September 11, and that it recognised that even prior to that the world economy was weakening.

"It does suggest that at that point the MPC was perhaps suspecting it might have to cut rates again in the near future."

Mark Cliffe, of ING Barings, said: "The minutes suggest the chances of a further rate cut are quite high.

"The fact that the decision was unanimous was I think something of a surprise because of a general feeling there would have been some minority dissenters on this, particularly on the second reduction."

'Out of the loop'

The minutes also seem to confirm that the Bank of the England was not informed in advance by the US central bank, the Federal Reserve that it was planning to cut interest rates.

After central banks around the world cut rates on 17 September, observers speculated that there had been a coordinated move to boost economic confidence.

'These MPC minutes confirm that the Bank of England was not in the loop when the US Federal Reserve and the ECB cut their interest rates. This is just one of the costs of Britain being out of the euro area," said Liberal Democrat MEP Christopher Huhne.

See also:

17 Oct 01 | Business
UK unemployment continues to fall
17 Oct 01 | Business
Bank mulls UK rate cut
16 Oct 01 | Business
Sharp fall in UK inflation
11 Oct 01 | Business
Eurozone interest rates unchanged
05 Oct 01 | Business
Are you an interest rate loser?
18 Sep 01 | Business
UK rates cut to 1960s levels
22 Nov 00 | Business
Who's Who at the MPC
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