MPC member hints at more aggressive interest rate cuts

The possibility of a more aggressive programme of interest rate cuts was raised yesterday by one of the Bank of England's more "hawkish" advisers.

Speaking at the Institute for Fiscal Studies in London, Timothy Besley stressed the very difficult task facing the Bank's Monetary Policy Committee (MPC) as it balances the decline in growth and confidence in the economy with continuing inflationary pressures from higher energy and food prices.

Mr Besley, a professor at the London School of Economics, said that "with credit conditions tightening, we might expect a significant reduction in consumption growth over the coming months... It seems like a fair judgement that a return to the conditions seen for secured lending in the first half of 2007 is not imminent".

He also stated that the MPC would be "forming a judgement on how conditions in financial markets are affecting the real economy."

Mr Besley is an external MPC member with a record of voting against rate cuts, so such an even-handed series of remarks was taken by many observers as an indicator that the Bank might, notwithstanding its relatively cautious Inflation Report last week, be prepared to countenance reductions in rates even though inflation is predicted to overshoot its target by more than 1 per cent this year – an event which would trigger a letter of explanation from the Governor of the Bank to the Chancellor.

Alan Clarke, of BNP Paribas, commented: "It is encouraging, from a rates standpoint, that the focus on downside risks came from someone with such a hawkish voting track record. This potentially shows that it wouldn't take much to push the Bank into cutting more aggressively if the threat from higher inflation were to subside."

Mr Besley was presented research that suggested that the link between consumer spending and tightening credit conditions means that the British shopper is in for a difficult time – specifically that a 20 basis-point widening in the Libor spread, as we have witnessed in the credit crunch, would reduce consumption growth by 0.7 to 1.5 percentage points.

Howard Archer, of Global Insight, added: "The comments indicate that, if credit conditions remain tight, he could favour a further reduction in interest rates."

The minutes of the MPC meeting will be published tomorrow.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test