Split decision on rates at last MPC meeting

According to the recently released minutes from the last Monetary Policy Committee meeting held in early August there was a split vote with regards to interest rate movement. However, despite this many officials now believe that the minutes indicate that the MPC and the Bank of England are now prepared to look at cutting rates again despite soaring inflation levels that are set to get worse. This is because of the gloomy forecasts that have been made with regards to the UK’s economy.

The minutes indicated that some of the risks linked to rising inflation had eased of somewhat, but it also said that the focus of policymakers could be brought into question if an immediate quarter point interest rate cut was made. Inflation levels are already way over twice the government’s 2% target, currently standing at 4.4%, and it is set to soar higher over the remainder of this year. However, the outlook for the economy is also looking increasingly bleak, and this is why many believe that the central bank is ready to cut the base rate.

For the August meeting there was another three way split like last month. Tim Besley once again voted in favour of a base rate rise to try and curb inflation levels, whilst rate cut advocate David Blanchflower once again voted for a base rate cut. Again, the other seven members of the committee voted to keep the base rate static, and it therefore remained unchanged at 5% for August.

One industry official said: “The fact that the Committee even discussed the arguments in favour of a rate cut suggests that it is gradually edging towards a loosening bias. With inflation set to peak within the next few months and the economy heading rapidly towards recession, we still think that interest rates will be falling by the end of this year.”