---- By VICTORIA MAIN ----
LONDON (AFX) - The UK will probably have to wait until May for an interest rate cut despite the 50 basis point reduction in the U.S. and the disclosure that two members of the Bank of England's monetary policy committee voted against holding the repo rate steady on March 8, according to economists.
They said last night's cut by the U.S. Federal Reserve's open market committee would have no bearing on the timing of the next MPC's reduction given the two countries' contrasting economic situations. "Unless the reasons apply to both countries, what happens with the Fed is irrelevant," Standard Chartered economist Julian Jessop said. He said UK economic statistics do not justify an imminent cut in the repo rate, which the MPC lowered by 25 bps to 5.75 pct in February.
"Unless the stock markets completely fall off a cliff I don't think we've seen enough in itself to prompt a cut in UK rates in the immediate term," he said.
"If you put aside what the headlines are and look at the actual hard numbers, then it looks pretty good. Unemployment is below a million, fiscal policy has just been loosened again," he said. Halifax economist Steven Pearson said the FOMC move was so widely expected that it is unlikely to influence the MPC.
Unlike many colleagues however, Pearson has for some time predicted the MPC will opt for another 25 bp cut in April. He saw the 7-2 vote at the last MPC meeting as confirming this view.
"I think what really convinced me is that there is a lot of emphasis on the prospects for the global economy and how it is weakening," he said.
"What we have seen in the last two weeks since the MPC meeting has amplified those concerns -- particularly the fall in equities which has knock-on effects and the Japanese situation which has taken a turn for the worse," he said.
But JP Morgan economist Danny Gabay described as "a neutral result" the disclosure in the meeting minutes released this morning that MPC members DeAnne Julius and Sashil Wadhwani preferred a further 25 bp cut.
"The two dissenters had clearly signalled their intent to vote for another cut by implicitly discussing the case for a 50 bp cut in February," he said in a research note.
Gabay interpreted the tone of the minutes as slightly negative for a near-term cut in rates.
"For the majority, concern about the ongoing strength of domestic demand and the recognition that it was unlikely to abate in the wake of lower interest rates and taxes outweighted the developing global downturn," he said.
Gabay noted the MPC's conclusion that "the most striking feature of the UK economy was the strength of demand and confidence despite the world outlook".
Standard Chartered's Jessop said the 7-2 vote gives no clues as to the timing of the MPC's next rate cut as it considers every month afresh.
He said however a rate cut would do no harm given that the MPC has undershot its official inflation target of 2.5 pct for 22 months.
"We're picking no change at the next meeting but a quarter-point cut in June. I don't think the timing of the election is very important but it may be another reason to hold off," he said.
JP Morgan's Gabay also predicts a 25 bp reduction in the second quarter.
"Beyond that, we will need to see some softening in March, and even if the collapse in U.S. equity prices is not enough to dent UK sentiment, the continued closure of large parts of the countryside and daily images of a community in crisis may well soon begin to have an impact," he warned.