Only One BOE Policymaker Wanted Rate Cut


Only arch dove Bank of England policymaker David Blanchflower wanted lower interest rates this month, with the remaining eight Monetary Policy Committee members keen to concentrate on inflation rather than growth.

The minutes to the May 7-8 meeting showed that most members were worried that lowering interest rates from 5 percent would make it harder to control inflation expectations, given a shock spike in consumer price inflation to 3 percent.

"A further reduction in Bank Rate this month could create the impression that the Committee was trying to stabilise output growth rather than maintaining its focus on the inflation target," the minutes said. "For most members, a reduction in Bank Rate this month would make it more difficult to keep inflation expectations in line with the target."

The BoE signalled in its May inflation forecasts that inflation could rise near 4 percent this year and overshoot the 2 percent target in two years' time if rates fell in line with market expectations.

Markets had been predicting on up to two more rate cuts this year with one as soon as June, but high inflation figures and the Bank's hawkish forecasts have taken many of those bets off the table.

The majority voting for steady rates in May was split into two camps over the downside risks to inflation from a sharp slowing in the economy.

"For some members, the economy had shown considerable resilience in the face of variation in credit conditions ... It was possible that spending would also be little affected by the current pressures on banks' balance sheets," the minutes said.

"For some other members, there was a significant risk that the impact of weakening property markets on the rest of the economy could be more substantial than implied by the central projection."

Blanchflower, however, felt the Committee should look beyond the current spike in inflation as there was a clear risk of inflation undershooting the target because of weak demand now and in the future.

He blamed high inflation on external factors such as oil and other commodity prices and, given subdued wage increases, he argued that this period of above-target price rises "would have little tendency to persist".