LONDON (AFX) - The Bank of England's Monetary Policy Committee voted by 6-3 to reduce the repo rate by 25 basis points to 5.00 pct on Aug 2, according to its meeting minutes released today. The minutes said the Bank's two deputy governors Mervyn King and David Clementi as well as Ian Plenderleith voted against cutting rates.
The majority agreed that the outlook for inflation was in keeping with last week's inflation report. It said heightened uncertainty about the global outlook alongside lower investment spending and weak external demand indicated this. However, for some members the imbalances in the economy meant that the decision to cut rates was a close one.
Some members said there were still few signs that consumption had weakened at all, citing the tight labour market. They said cutting rates now may not help the external pressure faced by the corporate sector, arguing a 'wait and see' approach would be preferable for now.
They also said an immediate rate cut would worsen the imbalances within the economy by stimulating already robust consumption. This, they said, will increase the size of the adjustment that will become necessary. Further, there was a risk that sterling could fall, tending to increase inflation and put upward pressure on nominal earnings. They also argued that the full impact of the earlier easing in monetary policy was yet to be seen, while the rapid rise in government spending was now well underway. Both of these would underpin domestic demand for the next year or so, making the rate cut in August unnecessary. They said the prospects for the world economy was not entirely gloomy amid some signs of recovery at the end of the year and in early 2002. These members also said there was not enough justification in the data over the months to make a case for surprising the market. A surprise cut could perversely strengthen sterling, they said.