Bank of England voted 7-2 to hold interest rates

AFP - Wednesday, August 20 02:49 pm

LONDON (AFP) - Bank of England policymakers were split three ways for a second month running when they decided to leave British interest rates at 5.00 percent in August, minutes of their latest meeting revealed Wednesday.

The BoE's nine-member monetary policy committee (MPC) voted 7-2 to maintain the level of borrowing costs on August 7, the minutes showed.

Policymaker David Blanchflower voted for a quarter-point cut while Tim Besley urged the BoE to lift borrowing costs to 5.25 percent.

The three-way split was identical to the MPC's voting pattern in July, when it was also decided by a majority vote to leave rates at 5.00 percent amid slowing economic growth and soaring inflation.

"The tone of the (August) discussion confirms that the interest rate debate remains finely balanced for now," said Capital Economics analyst Jonathan Loynes.

"Accordingly, there is little here to suggest that other members are about to join Blanchflower in voting for a cut in the very near future.

"Nonetheless, with inflation close to a peak and the economy heading towards recession, we still think rates could be falling by year-end and will eventually drop much further than the markets expect," Loynes added.

British annual inflation grew at the fastest pace for 16 years in July, to a level of 4.4 percent, as food prices surged, official data revealed on August 12, following the central bank's latest decision on rates.

The BoE had meanwhile last week warned that British inflation was set to rise sharply to around 5.0 percent this year, before declining rapidly toward the government's target of 2.0 percent from early 2009.

This would occur, however, only if the BoE decided to keep British interest rates at 5.0 percent, the BoE added in a report that gave its forecasts for inflation and economic growth.

"Most members of the Committee judged that the current stance of monetary policy was broadly appropriate and that Bank Rate should be maintained at five percent this month," said the BoE's minutes.

"Inflation was likely to move further above the (government's 2.0-percent) target in the coming months. The outlook for activity growth had continued to worsen, but some build up in the margin of spare capacity was likely to be necessary to ensure that inflation returned to the target in the medium term," they added.

The European Central Bank's key lending rate stands at 4.25 percent, as the eurozone battles with the twin threats of inflation and recession in the 15-nation eurozone. US borrowing costs are at the level of 2.0 percent.

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