Bank's hawk votes for rate cut

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The Independent Online
HOPES OF lower UK interest rates were given a boost yesterday by weaker growth than expected in earnings and news that one of the Bank of England's hardliners voted for a rate cut in September.

Willem Buiter, a Dutch academic and one of the most consistently hawkish members of the Bank of England's Monetary Policy Committee, voted to reduce rates by 0.25 points last month. In August, Professor Buiter wanted to raise rates by 0.25 points to 7.75 per cent.

The minutes of September's MPC meeting, released yesterday, showed that DeAnne Julius also voted for a rate cut for the fourth time since May. The remaining seven MPC members voted to keep rates on hold, although the committee as a whole took the unprecedented step of releasing a statement saying that the "balance of risks" in the economy had shifted.

Analysts said the minutes revealed a marked shift in attitude within the MPC and meant rate cuts were now more likely.

"It was clear to the Committee that there had been an increase in downside risks to world activity, principally arising from, the recent and possible future contagion of financial market crises in emerging market economies. The balance of risks on [UK] inflation had shifted towards the downside," the minutes read.

The MPC discussed the possibility of co-ordinated cuts in rates and concluded that UK rates would only fall if this was "consistent with pursuit of the domestic inflation target".

The committee expressed concerns about survey evidence suggesting weakening economic activity, and this, along with the falling stock market, is thought to be one of the key reasons why Professor Buiter changed his mind about interest rates.

David Hillier at Barclays Capital said: "With the most hawkish member of the Committee prepared to accept the risks to the economy posed by the deteriorating international environment, it suggests the Committee may move a touch more quickly than previously thought."

Other economists thought Professor Buiter's change of heart made it more likely that the MPC had voted unanimously to lower rates by 25 basis points earlier this month.

Separately, new data from the Office for National Statistics revealed a rise in the government's preferred measure of unemployment. Under the ILO definition, unemployment was 1.816m in the three months to August, 9,000 higher than in the previous quarter.

Under the alternative claimant count measure, however, unemployment fell by 11,900 to 1.305m, meaning that economists were divided about the underlying market trend.

The ONS also said headline growth in average earnings was 4.6 per cent in July, down 0.6 percentage points in August.

There was a marked fall in earnings growth in the private sector, where the headline rate dropped from 5.4 per cent to 4.7 per cent, although there was a rise in earnings growth in the public sector.

Revisions to the index meant that average earnings for the economy as a whole appeared to have peaked in June, the ONS said, while manufacturing earnings appeared to have peaked in April.

Gilts rose following the release of the data.

Outlook, page 19

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