Bank split on move to cut rates

The Bank of England's Monetary Policy Committee (MPC) was split three ways over its vote to lower interest rates to 5% this month, minutes have shown.

The minutes show that six members of the MPC favoured the cut from 5.25% - the third since December.

But two members, Tim Besley and Andrew Sentance, wanted rates kept on hold. David Blanchflower was the only member to support a larger cut to 4.75%.

Many analysts had expected a unanimous 9-0 vote in favour of a cut.

The argument for a cut was that it would help boost the economy and help counter a further slowdown.

"A reduction in Bank rate now would also reduce the tail risk of an unexpectedly sharp slowdown in demand later in the year," said the majority of members.

Postponing such a move "might then require a more vigorous policy response", said the committee.

But the latest minutes reveal the struggle the bank faces in tackling a cooling economy while the rate of inflation quickens.

The Bank of England is meant to keep the annual inflation rate close to 2% - a target set by the government.

But in February inflation rose to 2.5% from 2.2% in January.

Future cuts?

Richard McGuire at RBC Capital said the minutes were "not as dovish as expected from the snapshot at least, but the members that did dissent were very much in character".

David Blanchflower, who favoured the larger cut, has expressed fears that the UK could see the same degree of economic slowdown as the US.

The news sent the pound higher, on speculation that the MPC may delay further rate cuts.

Immediately after the news, one pound was worth $1.9973, up from $1.9915 before the minutes.

Paul Robson, currency strategist at RBS global banking, said: "With two people voting for no change, it will be hard to get a consensus for a cut in May."

While lower interest rates are aimed at stimulating the economy by making it cheaper to borrow, it can make sterling a less attractive investment compared to other currencies where rates are higher.

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