Bank voted 7-2 not to cut rates
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The Bank of England's Monetary Policy Committee (MPC) voted 7-2 to keep interest rates on hold at 5.25% this month, released minutes have shown. Two members of the rate-setting MPC had voted for an immediate cut of a quarter of a percentage point, but were outvoted by the other seven. The minutes show that the majority of MPC members said the committee needed to maintain its focus on inflation. The MPC cut rates in February from 5.5% to 5.25% to help ease economic fears. 'Exaggerated response' The minutes indicate that most MPC members were concerned that to follow February's rate cut so quickly with another reduction would give the wrong signal to the financial "Back-to-back reductions might lead observers to think that the committee was focusing on downside risks to demand at the expense of the medium-term outlook for inflation," the minutes said. "That in turn could lead to an exaggerated response of the market yield curve to a rate reduction." The two MPC members who voted for a rate cut were deputy governor John Gieve and David Blanchflower. Mr Gieve is responsible for financial stability, and came under fire at the Treasury Select Committee hearings for his role in the Northern Rock scandal. Inflation concern The Bank of England has cut rates in response to signs that the global economy may be struggling as a result of the impact of the credit squeeze and bad US mortgage debt. February's rate cut was the third from the MPC in recent months, with the previous reduction coming in December last year. But the US Federal Reserve has moved much further, and interest rates there are now at 2.25% following six cuts since mid-September, including two reductions in January. While analysts expect further cuts in UK interest rates as 2008 progresses - with some saying we could have one as early as next month - a number of MPC members are evidently still concerned about the danger that this could cause higher inflation. |
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