Bank ready to order new interest rate cut

The Bank of England signalled yesterday that it was poised to cut interest rates again should the weakening global outlook inflict further damage to the economy.

Eight of the nine members of its monetary policy committee backed the decision to cut rates by a quarter point earlier this month, while the ninth, Sushil Wadhwani, favoured a more aggressive move.

Other members rejected a half point cut for fear that such a sharp move could damage market confidence, according to the minutes of the meeting. The majority felt it was "better to move in small steps, cutting again if either domestic or in ternational news were to justify that in due course".

The Bank has cut rates by 0.75 of a percentage point since the start of the year in response to the global downturn. The minutes warned that economic growth was likely to be "at or below trend for a while given the slowdown in the world economy".

Despite the Bank's gloomy assessment, City economists believe that robust consumer spending figures released since the MPC met could postpone the next rate cut beyond June - when the MPC's decision coincides with the eve of the general election.

"A move next month looks unlikely while the consumer is in such rude health, though, as before, the MPC repeated that it would not be inhibited from moving by the timing of the general election," said Geoffrey Dicks, UK economist with the Royal Bank of Scotland.

"Thankfully the consumer gives them the appropriate get-out clause."

Philip Shaw, chief economist at Investec bank in London, said: "Our best guess is that with trends weakening in the eurozone and with sterling strengthening again... we will probably see a cut in base rates in July."

Analysts expressed surprise that DeAnne Julius, who supported aggressive easing at last month's meeting, had not used her last appearance on the MPC to push for a sharper cut.

Useful links

Monetary Policy Committee
MPC meeting minutes
European Central Bank