King joins the doves in voting for lower interest rates

Mervyn King, a deputy governor of the Bank of England, unexpectedly sided with the doves two weeks ago when the Monetary Policy Committee voted to cut interest rates by quarter of a point.

The minutes of the meeting revealed yesterday that only Sir Andrew Large, the Bank's other deputy governor, and Paul Tucker had argued rates should be keptat 4 per cent, while the other seven members of the rate-setting committee had backed the cut.

Mr King, who will take over as Governor when Sir Edward George retires in July, had been seen as the least likely addition to the group of doves.

Since becoming deputy governor in June 1998, Mr King has only very rarely found himself in the doves' camp when the MPC is split. For much of last year Mr King argued for an increase in interest rates and has warned on numerous occasions about the inflationary pressures ­ from both a tight job market and from the housing market ­ which could be triggered by cutting rates.

However, the Bank's Inflation Report, published last week, made it clear that the MPC's main concern this time around was flagging economic growth, leading to the possibility that inflation could actually fall below targets.

Simon Rubinsohn, the chief economist at Gerrard, said: "Everyone was surprised given that there was a seven-two split that Mervyn was not one of the ones to vote for a hold."

He added: "It doesn't seem in his character to change horses mid-way, but actually it looks like his change was not just a reaction to recent news flow but a part of the Bank's forecasting process. It sent a very clear message last week that if there was no cut, inflation could be below target."

Data published in the past few weeks has shed more light on why the MPC backed the quarter-point rate cut at its meeting on 5 and 6 February, which brought the base rate down to a 48-year low. But at the time the decision took the City by surprise.

Concerns that a cut could unnecessarily accentuate pessimism about the economy's prospects were the reasons Sir Andrew and Mr Tucker supported keeping rates on hold.

The minutes said: "An unexpected reduction could in current circumstances suggest that the outlook was worse than market participants currently believed and so could, perversely, reinforce the gloomy mood."

Mr Tucker and Sir Andrew, who are both responsible for monitoring financial markets for the Bank, argued that holding rates steady preserved the "maximum scope for action" if events took a turn for the worse.

Details of the decision making process last month made it unlikely that the MPC would go for another cut in March, economists predicted. Mr Rubinsohn said: "They are still predisposed towards easing rather than tightening rates, but I don't think they will cut again in March. Now that inflation is back on target I think they will wait until April or May."