Two MPC members backed interest rates cut

Two Bank of England monetary policy committee members voted for a cut in interest rates earlier this month, Bank minutes revealed today.

City economists expressed surprise that sentiment on the nine-member MPC had changed so quickly. One committee member was still voting for a rate increase only last month.

"It is a significant movement to see such a change from the votes last time," Alan Clarke, an economist at BNP Paribas, said. "That two members have voted for a cut means some at the Bank of England are finally acknowledging that all is not well with the UK economy."

Minutes of the MPC's June 8 and 9 meeting - at which borrowing costs were left at 4.75% for the 10th month running - showed that the Bank's chief economist, Charles Bean, and Marian Bell voted for an immediate quarter-point rate cut.

While there was a case for waiting for more information before acting, they believed a delay risked making the slowdown in consumption more entrenched.

"A small reduction in rates now might obviate the need for a larger reduction in interest rates at a later date," the minutes said.

Most of the committee, however, thought there was a lack of conclusive evidence on whether the slowdown in consumption - which began at the end of last year - was a temporary blip or something longer-lasting.

"If the latest consumption indicators presaged a return to stronger domestic demand growth, a reduction in rates now might accelerate the recovery in consumption growth and lead to inflationary pressures," the minutes said.

Despite the decision to stay put on rates, some City economists said a cut over the summer now appeared increasingly likely.

"This is a far more dovish set of minutes than expected, and the fact that two members of the MPC voted for a rate cut suggests that an interest rate reduction as early as August is now highly likely," Howard Archer, the chief UK economist at the consultancy Global Insight, said.

In the latest evidence of consumer retrenchment, Dixons, a barometer of high street health, warned investors of tough trading conditions ahead.

John Clare, the Dixons chief executive, said it was difficult to make forecasts for the coming year given the weakness of some of the group's main markets. "The outlook for the year ahead is uncertain, but we are anticipating a challenging trading environment, particularly in the UK and Italy," he said in a statement.

There have been numerous signs that the economy is losing momentum, from a slowdown in house price inflation to a stream of weak trading updates from retailers.

Last week, the Office for National Statistics reported that the amount of cash flowing into shop tills was growing at its slowest pace in almost four decades.

According to the ONS, the value of retail sales in the three months to May rose 0.9% from the same period a year earlier, the same as July 1967 and the joint lowest increase since records began after the second world war.

The Bank has raised rates five times since November 2003 in an attempt to cool down an overheated market. The tightening of monetary policy has had the desired effect, with the growth in house prices slowing sharply and the consumer boom - which has led to an accumulation of ?1 trillion in personal debt - grinding to a halt.

The minutes said a reduction in rates now would have been a significant surprise and "would run the risk of the inference being drawn that the committee believed that the situation had deteriorated more than it in fact thought".