Bank of England's MPC splits 8-1 over outlook for consumption

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The Independent Online

Interest rates look to stay on hold for the foreseeable future after it emerged yesterday that the Bank of England's Monetary Policy Committee was split on the outlook for consumer spending.

The nine-strong committee had voted 8-1 against a cut for the fourth month in a row. Stephen Nickell, the university professor who steps down from the committee next month, was again the only dissenter.

Jonathan Loynes, at Capital Economics, said: "The fact that Mr Nickell leaves the committee in May obviously puts something of a dent in the chances of a near-term rate cut."

Minutes of the 8-9 March meeting published on Wednesday showed that for some members, signs of recovery in the housing market posed an upside risk to consumption, particularly at a time when economic growth appeared to be picking up.

The MPC said output indicators suggested GDP in the first three months of the year was growing above its long-run potential, with business services activity particularly strong.

There was a wider divide over the likely path for consumption, offering hints that the committee was prepared to cut rates if the economy worsened. "For some members there were still downside risks to consumption and the softer data since Christmas suggested these might be crystallising," the minutes said. "For others there remained some upside risks to consumption resulting from the apparent strengthening of the housing market at a time when GDP growth was recovering."

The majority said while energy prices had shown no signs of feeding into pay claims so far, reports of fresh gas price rises meant inflation "needed to be monitored carefully".

A number of utility firms have recently announced price increases of more than 20 per cent, and figures on Tuesday showed inflation picked up to 2 per cent in February, hitting the Bank's target for the first time since June 2005.

Mr Nickell said rises in unemployment and surveys of capacity utilisation pointed to the need for an immediate cut in rates.

Financial markets barely reacted to the outcome, which had been widely expected. Market expectations for a further cut in rates after August's quarter-point reduction have evaporated on signs the economy is, at worst, growing at trend.

Rob Carnell, at ING Financial Markets, said: "With the overall assessment of the MPC that growth would continue near trend, and inflation would remain close to its target, there seems little imminent chance of a policy change."

The MPC was split 8-1 for the fourth consecutive month in March, as expected, with Mr Nickell once again opposing the decision to hold rates at 4.5 per cent and voting for a cut. "It was possible the weaker indicators of household spending ...might not be giving a complete guide to aggregate consumption," the minutes said.

The MPC member Kate Barker, perceived as the most likely to join Mr Nickell in voting for lower borrowing costs, said on Tuesday "now is not quite the moment cut rates".

Mr Nickell will be replaced by the US economist David Blanchflower, a labour market expert, on the MPC.