MPC's two dissenters lower odds for early rate cut in new year

The City reduced the odds yesterday on a cut in UK interest rates in the new year after the Bank of England revealed that two members of its monetary policy committee are urging cheaper borrowing.

Minutes of the meeting of the nine-strong committee this month show that DeAnne Julius and Sushil Wadhwani called for a quarter-point reduction in base rates to 5.75% to fend off the impact of a pronounced slowdown in the global economy.

Although the two were outvoted 7-2, signs that the Bank is becoming concerned at the prospects of weaker demand prompted hopes of the first cut in rates since summer 1999.

The cost of borrowing has been on hold at 6% since February but, with inflation below its 2.5% target and fears of recession growing in the US, any lingering pressure for higher rates has now disappeared.

According to the minutes, Ms Julius and Mr Wadhwani argued that the "sharper than expected slowing in world demand" would lower activity in the UK, pushing down inflation. Although sterling had fallen on the foreign exchanges, any increase in domestic prices caused by dearer imports would be offset by cheaper oil and the shake-out in global stock markets.

However, the majority of the committee preferred to wait and see, noting that consumption remained strong, household borrowing was rising strongly and there were indications of a rekindling of house-price inflation.

• Separate figures published yesterday showed Britain's public finances swung back into deficit in November after a hefty surplus the month before. National Statistics reported a public sector net cash requirement of £2.31bn in November, after a surplus of £7.32bn the month before.