MPC split vote could signal early rate cut

INTEREST rates could be cut as early as next month after it was revealed yesterday that two members of the Bank of England's monetary policy committee (MPC) voted for a rate cut at its last meeting.

According to the minutes, Charles Bean, the Bank's chief economist, and Marian Bell voted in favour of a quarter point reduction in the base rate, while seven members voted to keep rates on hold.

It is the first time any member of the MPC has voted for a reduction in interest rates since the base rate was cut to 3.5 per cent in July 2003. Howard Archer, UK chief economist at Global Insight, said: "This is a far more dovish set of minutes than expected, and the fact that two members voted for a rate cut suggests that a rate reduction as early as August is now highly likely. Indeed, July could now even be a possibility."

The minutes showed Bean and Bell, the MPC's leading dove who ends her term this month, voted to cut, believing it necessary to ensure the consumer slowdown did not turn into a rout.

But the other seven felt the competing risks of slowing household spending and rising inflationary pressures had not been resolved and opted to leave interest rates at 4.75 percent for a tenth month.

The discussion of lower interest rates marked a turnaround after Bank deputy governor Andrew Large had called for a hike only a month ago.

However, in his Mansion House speech in London last night, Mervyn King, Governor of the Bank of England, gave nothing away over where he believed rates would go next.

He said: "The MPC tries to make monetary policy predictable not by giving hidden signals and subtle clues in speeches - including this one - as to where interest rates will go next, but by explaining our interpretation of the data."