15 August 2001, 12:54 BoE MPC voted 6-3 to cut repo rate to 5 pct on Aug 2
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.
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