By Philip Uglow
LONDON (MktNews) - Monetary Policy Committee member Stephen Nickell said Tuesday that he did not give an interest-rate cut of 50 basis points serious consideration at the MPC's meeting in early February.
In an exclusive interview with Market News International, Nickell said, "I can certainly say that I wasn't in the camp that gave 50 basis points that serious consideration."
The repo rate was cut 25 bps to 5.75% following the February meeting, but the minutes of the meeting revealed that some members of the committee were thinking about voting for a 50 bps easing.
However, Nickell added, "I don't think anyone really seriously, seriously, saw that 50 basis points was going to happen". He added that for some there was an issue of whether there should be an immediate cut of 50 bps or whether it would be better to cut by just 25 bps and then cut again by 25 bps at some point in the future.
However, he noted that "as soon as you think of that choice, between 50 basis points today, or 25 basis points now and 25 basis points later, there are good reasons for thinking that 25 basis points now and 25 basis points later is a better thing to do -- partly because you may think 50 basis points is going to spook everybody and make them think the US is like the UK, and that wouldn't be a good idea."
Asked what prompted the MPC to vote for a rate cut in February, Nickell said that looking forward the situation on inflation was relatively benign and that the Q4 GDP figures added the last piece to the jigsaw.
"Given the absence of inflationary pressure and given the feeling going forward things were slowing down -- for the first time in February we had the Q4 numbers -- that added up to a rate cut," Nickell said.
GDP growth slowed sharply in Q4, to show a rise of just 0.3% on the quarter, although a large decline in energy production was responsible for dampening growth. RPIX inflation dropped to just 1.8% in January, well below the 2.5% target.
Nickell noted that some of the Q4 slowdown "was special, but it didn't seem to be all that special."
Looking ahead, Nickell said that so far private-sector demand had slowed enough to take the repo rate down to 5.75%, adding that, "Since we saw that Q4 result, we're just kind of waiting to see what happens next." He noted that currently the economic news looks a bit mixed. "On some aspects, retail sales, consumption and the housing market look reasonably okay," Nickell said. Forward looking indicators are all quite good and there has not been any collapse in consumer confidence so far.
However, the latest industrial and manufacturing production numbers were disappointing, he said, and he questioned the extent of the decline wondering if it was "just seasonality".
Manufacturing output plunged 0.9% in January, although much of the decline was due to a massive fall in the optical equipment and mobile telephones industry.
"So we got the 5.75% then on that Q4 news. The domestic economy is looking a bit mixed as to what's happened after that, and that's the present situation. So we're just waiting to see how it will straighten out in Q1," Nickell concluded.
Asked whether a possible General Election in May would impinge on monetary policy, Nickell replied that it would not, adding that "whether we'd ever persuade anyone of the truth of that statement is another matter."
Nickell did not have too much to say on the chancellor's recent budget statement, but did note that the "the overall size of the whole thing is hardly very substantial...there is no real surprise."