MPC unanimous on cutting rates

The Bank of England's monetary policy committee voted unanimously for this month's cut in interest rates - and held out the prospect of further reductions if the global economic outlook deteriorates.

Minutes of the February 7 and 8 meeting published yesterday showed that all nine members were in favour of the quarter-point cut to 5.75%, the first for 20 months.

Their main concern was the "distinctly softer" international environment and the fact that inflation had been below target for nearly two years.

Some of the four who had voted for a quarter-point cut in January - thought to include DeAnne Julius and Sushil Wadhwani - urged the committee to consider a half-point reduction, citing tentative signs that the labour market was weakening and the economy's improved supply side performance.

They pointed out that a half-point cut would easily be consistent with the Bank's inflation forecast, showing inflation below target for most of the next two years.

The committee finally decided that a half-point cut might backfire if it perversely damaged confidence by making consumers, financial markets and firms assume the outlook for growth was gloomier than they had assumed.

"There was time to wait, as the lags between policy changes and confidence were probably somewhat shorter than other elements of the transmission mechanism. The possible need for further cuts could be kept under review in the light of developments," said the minutes.

Economists said the budget and election would get in the way of further rates cuts in the next few months. The minutes pointed out that the committee intended to ignore this speculation, however, and carry on setting the policy it thought necessary to achieve the 2.5% inflation target.