MPC still split on interest rates

The Bank of England's interest rate-setting monetary policy committee (MPC) was again split on the future of interest rates.

However, after two months of three-way splits, the minutes from the MPC meeting earlier this month, which were released today, show just one dissenting voice.

David Blanchflower maintained his dissenting voice and this month called for a cut in interest rates of 0.5 percentage points.

The minutes reveal Mr Blanchflower felt "the prospects for UK demand had clearly worsened" and he warned "the slowdown might be amplified by financial institutions’ responses to increased financial fragility".

He added inflation could well fall below target without an interest rate cut, with rises in unemployment and a slowdown in the economy.

However, most members of the MPC judged that maintaining bank rate at five per cent was "necessary if inflation was to be brought back to the target in the medium term".

There were also fears a cut in interest rates would further lower the value of sterling and make imports more expensive – so pushing up inflation.

The prospect of an interest rate increase was also discussed, but it was felt the surprise might "encourage a broader reassessment of UK economic prospects".

David Kern, economic adviser to the British Chambers of Commerce, welcomed the news no-one voted for an interest rate rise, but called on the Bank to focus on stopping turmoil in financial markets.

"The new MPC minutes reveal a welcome shift towards a more accommodating stance. One member has abandoned his previous calls for a rise in rates, while another member has called for a cut in rates," he said.

"But the alarming financial turmoil and the speculative attacks on the share prices of major UK banks highlight the urgent need for a forceful response.

"The Bank of England must urgently remove the uncertainties about the extension of its Special Liquidity Schemes, and reconsider its plans for tightening the scheme."