Sterling slips on BoE minutes
20 February 2008
Sterling fell to a one weak low against the US Dollar earlier today, after it emerged that all nine members of the MPC voted for an interest rate cut earlier this month. Minutes from the 6/7th February meeting, where rates were cut by 0.25% to 5.25% confirmed that policymakers were concerned that tighter credit conditions meant interest rates were still too restrictive.
The Bank of England’s rate setting committee voted 8-1 in favour of a 0.25% cut, while arch dove David Blanchflower opted for a larger 0.5% cut. The news will confirm suspicions that the Bank is preparing to cut rates further, in order to prevent the economy slumping into a major slowdown. It follows the Bank's Inflation Report last week, at which it warned it was facing a difficult balancing act, with inflation on the rise even as the wider economy stalls. The Bank of England remains particularly concerned that a near-term sharp spike up in inflation resulting from higher energy, food and import prices will lift inflation expectations and thereby affect the medium-term behaviour of price and wage setters.
Expectations are that the Bank of England will continue to cut interest rates throughout the year, however at a much more gradual pace than had previously been forecast. However the urgency of such a move will be largely dependent on the severity of an economic data pointing towards additional slowdown and inflation expectations in the coming weeks.