MPC members vote for rate cuts

Two of the nine members of the Bank of England’s Monetary Policy Committee voted for a 25 basis points rate cut at the latest meeting on 8 and 9 June, minutes published show.

It is the first time any MPC member has voted for a rate cut since July 2003, the Bank’s record of voting shows.

Charles Bean and Marian Bell have argued the cut is needed in light of evidence of the threat to UK economic growth from continued weakness in the euro area, the domestic slowdown in secured and unsecured lending, slowing nominal GDP growth, and an ‘easing’ labour market.

Producer price inflation has been slowing, suggesting recent general inflation has been the result of oil and commodities price increases, rather than a response to growth in demand.

While there may be an argument for waiting for more data to support the view that consumption has been slowing, waiting to bring about an interest rate cut would risk entrenching that slowdown, the dissenting MPC members have said.

Countering the argument that pre-emptive rate cuts should be sought, the MPC minutes also show that there is an argument for not cutting rates, so as not to spook the market into thinking the state of the economy may be worse than it actually is.

Also, given conflicting signals about just how much consumption may or may not have slowed, cutting rates now would risk fuelling a recovery in spending that might go too far, increasing inflationary pressures again.

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