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Wednesday, 19 December, 2001, 15:03 GMT
BoE solidly behind unchanged rates
Bank of England building, London
BoE forecast to cut rates again next year
Just two of the Bank of England's monetary policy committee voted to cut the cost of borrowing this month, against seven favouring no change.

Minutes from the MPC's last meeting on 4 and 5 December show that the two dissenters called for a further 0.25% cut in rates to bolster business confidence ahead of key investment and recruitment decisions early in the new year.

But the remaining MPC members argued that another reduction would boost already sky-high consumer borrowing, stoking inflationary pressures.

The MPC has cut interest rates seven times since February this year to a 37-year low of 4%.

The seven MPC members who formed the majority view said it would be safer to wait for these cuts to take full effect before acting again.

Rates to fall further?

Analysts said the latest set of minutes suggest that the MPC is ready to cut rates again early in the new year if the economy does not recover.

"It seems that once you go through all the entrails, the bank is still operating with an easing bias," said Jeremy Hawkins, economist at the Bank of America.

"We are going for a cut, probably in about February next year."

The dissenters from the majority view include long-time MPC "dove" Sushil Wadhwani, who has this year consistently called for lower interest rates to boost the flagging economy.

BoE governor Eddie George and deputy governor Mervyn King both backed the majority view.

Mixed signals

The MPC said that while confidence has on balance improved since the middle of the year, the outlook for business investment remains uncertain.

However, prospects for the international economy, while downbeat, are showing signs of stabilising.

"The US economy was clearly weak, but no more so than had been expected at the previous meeting, and there were some more positive sides. The euro area, however, appeared to be a little weaker," the minutes stated.

Mixed economic signals have presented the MPC with a dilemma this year, with manufacturing sliding into recession in line with a weakening global economy, while the dominant services sector continues to perform strongly.

Meanwhile, persistently strong consumer spending has shown that inflationary risks remain, deterring the MPC from slashing rates too freely.

Earlier this month, official figures put UK inflation at just 1.8% a year, although some analysts attributed this to a one-off decline in world crude oil prices.

The MPC is responsible for keeping inflation at or near the government's target rate of 2.5% a year.

See also:

19 Sep 01 | Business
Bank considered UK rate rise
15 Aug 01 | Business
Bank split over rate cut
18 Jul 01 | Business
UK rates may head higher
20 Jun 01 | Business
Rate cut prospects fall in UK
21 Feb 01 | Business
Bank was unanimous on rate cut
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