Rate cut voting suggests more to come

Expectations that interest rates have reached a trough were challenged yesterday by news that all nine members of the Bank of England's monetary policy committee voted for a reduction when they met this month.

Minutes of the April 7 and 8 meeting showed everyone except Willem Buiter backed the quarter point cut to 5.25%. Mr Buiter wanted a half point cut.

Despite new figures showing a pick up in wage inflation to an annual rate of 4.6%, financial markets interpreted the MPC's unanimous support for cheaper borrowing as evidence that further monetary stimulus was likely. The pound fell slightly against the dollar though it remained more or less unchanged against the euro.

When this month's rate cut was announced, the MPC broke its habit of issuing a statement, suggesting a split vote according to some ob servers. However, the minutes show there was no mention of higher rates and little enthusiasm for them on hold, though the inflationary implications of the recent rise in the oil price and the buoyancy of share prices was noted.

The outlook for economic growth had not changed much since its meeting in March, but the committee agreed that the risk of inflation undershooting the government's 2.5% target had increased.

Committee members pointed to lower than expected earnings growth, then running at 4.3%, the strong pound, which was over 2% higher than they had assumed in the February inflation report, and the fragility of confidence, which could be undermined by the Balkans conflict.

'A decision to maintain rates could be seen as a policy tightening, which might have an unnecessarily damaging effect on confidence and activity,' the minutes said.

Michael Saunders, UK economist at US investment bank Salomon Smith Barney Citibank, played down fears that the rise in earnings would block further cuts. The minutes showed the MPC was not relying only on the official figures but also its own estimates showing wage deals averaging 3.3% and private sector surveys.

'We suspect the MPC will conclude that earnings will slow, either because these earnings figures will be revised or the latest pick-up will reverse in coming months.'