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EDITIONS
Wednesday, 20 November, 2002, 12:27 GMT
Bank edges away from rate cut
The Bank of England's rate-setting monetary policy committee
The MPC has now left rates on hold for a year
Worries over the strength of the UK's housing market prompted the Bank of England's interest rate-setting committee to keep rates on hold earlier this month.

"A reduction in interest rates now risked stimulating house prices and household borrowing even further, increasing the risk of a sharper fall in consumption at some point in the future," minutes from the meeting said.

The minutes showed that the nine members of the Bank's monetary policy committee (MPC) voted 7-2 in favour of keeping interest rates on hold at 4%.

MPC members Christopher Allsopp and Steven Nickell voted in favour of a quarter-point cut.

At the Bank's previous meeting, three MPC members had voted in favour of lower rates.

The committee noted that if it looked as though inflation was set to undershoot its target "there would be time to reduce rates to help keep inflation on target around the two-year horizon".

The MPC has a target for underlying inflation of 2.5%, which it is allowed to over or undershoot by one percentage point.

Tough call

This month's rate decision was billed as one of the most finely balanced the MPC has had to make.

Slow growth in the global economy, and continuing problems in the UK's manufacturing sector supported a rate cut.

And the day before the MPC's meeting began the US Federal Reserve chopped rates by half a percentage point, raising hopes that the UK would follow suit.

Even though housing market worries led the committee to leave rates alone, analysts said a rate cut remained a possibility.

"Given the BoE inflation projection, it is not surprising to see a small shift in favour of rates remaining on hold," said Philip Shaw, chief economist at Investec.

"But there are arguments for either policy option and it is still possible rates will fall over the coming months."

Housing bubble deflating?

On Wednesday, the latest property survey from the Royal Institute of Chartered Surveyors showed house prices still growing at an average of about 20% a year.

But there was a hint that the housing market could be slowing from another survey released by the property website Rightmove.co.uk.

It said house prices slipped by 0.2% in October, the first drop since January, although the annual rate of inflation was still above 22%.

Rightmove said London was leading the decline, with falls in the capital's most expensive areas now spreading to other areas.

Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
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