Bank opens the door to cut in interest rates

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The Bank of England left the door open for a cut in interest rates, it emerged yesterday, after the minutes of its latest meeting showed that the Monetary Policy Committee voted unanimously to keep the cost of borrowing on hold.

The MPC voted 8-0 to keep rates at 4 per cent for the 10th month in a row when it met two weeks ago. However, the minutes show that the committee discussed the merits of a rate cut and noted that it "remained ready to take further action, by reducing rates, if and when any additional stimulus were judged to be necessary to meet the inflation target".

The minutes said that it would be "premature" to have cut rates to shore up the economic recovery. Nevertheless, economists detected a shift in the committee's bias towards easing rather than tightening monetary policy.

"In August, they debated cutting rates and also reasons not to raise rates. Now we see no mention of raising rates," said David Page of Investec.

Geoffrey Dicks, an economist at Royal Bank of Scotland, said: "As before the impression is that rates are on hold for the foreseeable future. Any near-term move might be to the downside, longer term to the upside."

The decision to keep rates on hold was reached on the basis that a reduction at this stage could "give undue encouragement to households to accumulate yet more debt, and renew the upward pressure on house prices".

Some economists said the committee appeared content to do nothing for the time being. But with underlying inflation comfortably below the target of 2.5 per cent in August, others suggested its hand could yet be forced. "If either the global picture softened further or the domestic picture weakened more abruptly or sooner than they wanted, then a further reduction would be sanctioned," said Danny Gabay at JP Morgan.

The MPC was eight-strong in September, awaiting the new deputy governor's arrival.