Wednesday, April 23, 2008
Three-way split at the Bank
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

The Bank of England's monetary policy committee (MPC) split three ways in voting to cut Bank rate to 5% earlier this month. Six members, Mervyn King, Rachel Lomax, Sir John Gieve, Paul Tucker and Charlie Bean (the Bank insiders) voted for a quarter-point cut along with Kate Barker. One external member, David Blanchflower, wanted a half-point reduction while two, Tim Besley and Andrew Sentance, preferred to wait, voting against a cut.

This was the majority view: "For the majority of members, the outlook and the balance of risks around the Committee’s central projection for inflation warranted a reduction in Bank Rate of 25 basis points at this meeting. In order to avoid an excessive increase in the margin of spare capacity and hence undershooting the inflation target in the medium term, it was necessary to offset, partly but not wholly, the current and prospective downward shift in demand arising from the deterioration in global credit conditions and its consequences. A 25 basis point reduction now would be consistent with market expectations of a gradual easing of Bank Rate, which had been informed both by the February Inflation Report and by subsequent communications by Committee members. A reduction in Bank Rate now would also reduce the ‘tail’ risk of an unexpectedly sharp slowdown in demand later in the year, which, if it materialised, might then require a more vigorous policy response in order to hit the inflation target further out." The minutes are here