June 22, 2005

Bank of England retains rate as calls for cuts continue

by brian_turner

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The latest set of minutes from the Bank of England’s Monetary Policy Committee (MPC) has raised the possibility of an early cut in UK interest rates.

Two members of the MPC, Charles Bean and Marian Bell, voted for a cut, while seven members voted to keep rates at 4.75%.

Those against the rate reduction argued that further evidence of a consumer slowdown was needed before any rate cuts were made. At the previous meeting in May the committee voted 8-1 to keep rates on hold, but the dissenting vote was for a rate increase. The two members in favour of a cut said that delays in reducing rates could result in a slowdown in consumption becoming more entrenched.

Before the Bank’s June meeting, UK retailers called for a rated reduction to stimulate High Street spending. The housing market has also slowed.

Holger Schmieding, an economist at Bank of America, said the June vote raised the possibility of a rate cut in August.

David Brown, chief European economist at Bear Stearns said “We think the Bank will cut after the summer, and UK rates should be heading down to 4% by the end of 2006.”

However, inflationary pressures caused by a renewed surge in oil prices has bond investors convinced that rates will have to increase.

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