LONDON (MktNews) - The Bank of England's Monetary Policy Committee voted 7-2 in favour of leaving the repo rate unchanged at 5.75% in March, minutes of the meeting showed Wednesday.
Both DeAnne Julius and Sushil Wadhwani voted for an immediate reduction in the repo rate by 25 basis points. They argued that the outlook for the world economy had deteriorated and equity prices in major markets had fallen.
"The (global) slowdown was likely to more prolonged and possibly deeper," they concluded.
They also felt that it was "implausible" that underlying inflation measured by RPIX would return to target at the two-year horizon, as they did not share the implicit assumption in the February Inflation Report that output was currently above its full capacity level.
Julius and Wadhwani argued that both the fiscal and monetary stance were slightly contractionary, although they said that there was no great urgency for a cut. But they added that "it was preferable to take steps to bring inflation back to the target level sooner rather than later."
They added that further cuts might be needed if the downside risks from the world economy materialised.
The majority on the MPC said that the data did not support a cut in the repo rate in March, as the world economy was turning out "broadly in line" with the projections in the February Inflation Report.
They added that the prospects for domestic demand seemed to be "slightly stronger" than a month earlier and consumption was still growing strongly.
"The labour market showed little sign of easing and there were modest signs of strengthening earnings growth. Inflation remained below target, but not substantially so. The most striking feature of the UK economy was the strength of demand and confidence despite the world outlook," they said.
However, some of these members felt that in terms of getting RPIX inflation back to target in two years' time, a rate cut now would be desirable. They were worried however that such a move might stimulate consumer spending further in the short-term and prompt a further worsening of household balance sheets.
"Were these domestic upside risks to diminish, or the downside risks inherent in the world economic outlook to crystallise, it could become easier to take steps in the short run to move inflation back to target without adding to the risks in the medium term," they said.
These members said that such considerations were an important factor in their assessment of the appropriate timing of a change in the repo rate, "and it was generally recognised that it would be necessary to respond to that eventuality if and when it arose."
Overall, the MPC felt that the largest uncertainty remained the global outlook and especially the pace of growth in the US.
On the March Budget, they said that it had been in line with what was expected from the November Pre-Budget Report and "so had little bearing on the Committee's decision this month."