Early interest rate cut unlikely in UK

Hopes of an early cut in British interest rates appeared to be dashed today after a report showed that it was not currently in the thinking of policymakers.

Minutes from the January meeting of the Bank of England’s Monetary Policy Committee (MPC) revealed that all members felt that rates should remain on hold at 4.75%.

There was no discussion of the case for a cut in the cost of borrowing after inflation picked up a “little more rapidly than expected” since November.

This contrasted with the December meeting when some members felt the MPC had more room to manoeuvre on rates because the chances of inflation undershooting the 2% target over two years had increased, although the case was not persuasive.

The unanimous decision on interest rates was the ninth month in a row that no MPC member has broken ranks to vote against the majority view.

The last time there was any dissent was last April when the MPC was split 8-1, with Sir Andrew Large preferring a hike in rates to 4.25% against the wishes of colleagues.

Investec economist David Page said: “These appear to be a relaxed set of minutes and suggest we will see rates at 4.75% for some time to come.”

Inflation has risen to its highest level since June with figures for November showing the annual rate rose by 0.3% to 1.5%. It now stands at 1.6%, although the data for December was published a week after the MPC meeting this month.

The MPC said its central projection of a pick-up in inflation during 2005 on the back of factors such as the higher cost of energy and raw materials “still looked reasonable”.

In the absence of any significant news, the MPC said it would use the preparation for its next quarterly Inflation Report to look again at its forecasts.

The MPC saw “no clear evidence” of a significant change in the pace of consumption growth against its expectations – despite media comments about weak retail sales at Christmas.

House prices were a little than stronger than expected in November but it was “too early to draw conclusions about the pace of the housing market slowdown”, the MPC said.

“Nor was there any evidence to suggest that the main risks identified at the time of the November Inflation Report were materialising – with the possible exception of slightly weaker world activity that had been identified in the December minutes,” the report added.