Bank hawk defends big rate cut

Tim Besley was against rate cuts over the summer

Monetary Policy Committee (MPC) member Tim Besley has expressed his surprise at the market's reaction to the Bank of England's recent 1.5% interest cut.

Most analysts had expected a cut of between 0.5% and 1%, but few had predicted such dramatic action.

Mr Besley, who was a lone voice calling for a rate increase as recently as August, said the cut was "justified by the outlook for inflation."

The MPC has been criticised for waiting too long before cutting rates.

He was speaking ahead of the release on Wednesday of the MPC minutes of the meeting in which the decision to cut rates was made.

Rates currently stand at 3%, their lowest level since the 1950s. Most analysts expect rates to fall below 2% next year as economic activity continues to contract.

In the months preceding the 1.5% cut, Mr Besley was widely seen as the most hawkish member of the MPC.

But Mr Besley argued that the market's surprise at the size of the cut may have been due to "pundits' and commentators' obsession" with describing members of the MPC as either hawks of doves.

The hawks were supposedly in favour of raising rates while the doves wanted to cut rates.

Falling inflation

Mr Besley, speaking to the Royal Economic Society, said the move to cut rates was based on the "normal process of deliberation and decision making."

He said that the outlook for inflation had changed dramatically between August and the rate cut in early November.

Falling energy prices and the banking crisis that sparked genuine fears of a deep and protracted recession had put considerable downward pressure on prices, he said.

The Office of National Statistics announced on Tuesday that consumer price inflation fell from 5.2% in September to 4.5% in October.