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Wednesday, 23 January, 2002, 13:29 GMT
Bank chiefs unanimous on rate freeze
Bank of England
The Bank last cut rates in November
Bank of England gurus in charge of setting interest rates voted unanimously in favour of a rate freeze this month.

All nine members of the Bank's monetary policy committee (MPC) voted in favour of keeping the base rate at 4.0%, minutes of their January meeting have revealed.

Speculation had grown in the run up to the meeting that some committee members might urge a rate rise to stop consumer spending getting out of control.

But on Wednesday the CBI called for another quarter-point cut in rates after its latest survey of manufacturing firms showed both orders and prices falling.

Last year, the Bank cut UK interest rates seven times, the last reduction coming in November, as it tried to prevent the economy from falling into recession.

Future risks

While the MPC agreed rates should be kept on hold in January, it added rates may have to be cut if "it was thought likely that consumption would slow before the world economy revived".

It said this might happen as unemployment and consumer debts rose.

People shopping
Consumer spending figures are being watched closely

Against this, it was noted that if the US economy maintained its revival, and UK consumer spending continued to grow strongly, rates might have to rise.

On the whole the MPC felt there was a reasonable chance that UK consumer spending "would slow naturally at broadly the same time that the world economy recovered".

This would allow the UK "to maintain a growth rate close to trend and inflation close to target".

The Bank's target for underlying inflation - which excludes mortgage costs - is 2.5%, but it is allowed to over or undershoot it by one percentage point.

In December underlying inflation stood at 1.9%.


The Bank has had to set interest rates mindful of the contrasting fortunes of different parts of the UK economy.

Manufacturers are battling with a long-running recession, which is showing no signs of ending according to the CBI's latest quarterly trends survey.

What is clear is that there are new camps forming within the committee and whatever the next move might be, it is unlikely to be an unanimous decision

John Butler, HSBC
The study found that UK exporters were having to cut prices in order to keep customers as both exports and domestic orders fell.

Meanwhile the service sector has managed to shrug off much of the economic slowdown, and retailers have been supported by strong consumer spending.

Some members of the MPC warned these imbalances pose a threat to the economy, arguing that more rate cuts were not needed, as a further stimulus to demand could stoke up inflationary pressures.

Since the MPC met in early January, new retail sales figures showed that sales fell in December, even though the underlying growth rate remained strong.

This surprised many analysts, as several retailers had announced buoyant trading statements for the Christmas period.

Where next?

The minutes gave few clues as to the future direction of interest rates, analysts said.

"Looking at the minutes, there is something for everyone," said George Buckley at Deutsche Bank.

"On the one hand there are those saying that consumption could slow by itself which could be a reason for further rate cuts, then there are the hawks saying that consumption will be strong which could be a reason for raising rates later this year."

John Butler at HSBC also thought the next move was hard to call.

"What is clear is that there are new camps forming within the committee and whatever the next move might be, it is unlikely to be an unanimous decision," he said.

"Our own view is that rates have troughed, because of the imbalances argument, and the timing of rate rises will be delayed until the third quarter due to a disappointing global recovery and weak inflation outlook."

See also:

10 Jan 02 | Business
UK interest rates left unchanged
19 Dec 01 | Business
BoE solidly behind unchanged rates
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
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