23 May 2001, 13:02 BoE MPC majority saw 50 basis point cut 'not necessary or prudent'
LONDON (AFX) - The Bank of England's Monetary Policy Committee
voted by eight to one to cut the repo rate by 25 basis points to 5.25
pct at its May 10 meeting, according to the meeting minutes released
today.
The minutes showed that only external MPC member Sushil Wadhwani
wanted a reduction of 50 basis points.
But the majority deemed that a larger cut than 25 basis points was
not "necessary or prudent."
The majority argued that consumption growth remained "fairly
strong", that a 50 basis point cut could damage confidence, that since
the MPC's April meeting there had been little domestic news and the
implication for the UK of international developments was not clear, and
that a larger cut would only be warranted if inflation was stuck at
around 2.0 pct, which it was not.
The majority preferred to "move in small steps cutting again if
either domestic or international news were to justify that course."
Most MPC members considered that output growth would be at or below
trend "for a while" given the global slowdowns, that business
confidence had "most probably fallen" and that slowing consumption
growth and an increasing negative contribution to gross domestic
product growth from net trade were expected to more than offset the
effects of rising public spending.
"For these members, the news of the month was on balance in the
direction of weaker growth and so warranted a further small cut in the
bank's repo rate," the minutes said.
"For some of these members, not much, if any, downside news had
been needed since the committee's April meeting to justify a further
easing," the minutes added.
The MPC noted that the timiing of the June 7 election was
"irrelevant" to its rate decision which it said would be as usual made
on the basis of what was necesary to achieve the 2.5 pct inflation
target.
The minutes said that with the economy set to grow at or close to
trend, the labour market still tight and strong sterling's earlier
dampening effects on inflation wearing off, "inflation was most likely
to rise gradually over the coming two years or so."
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