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BOE Tilts Slightly Toward Rate Cut

One Bank of England policymaker wanted to cut borrowing costs this month, but was outgunnned by the other eight who argued new forecasts in November would provide a better steer on how the economy was faring.

Minutes of the Monetary Policy Committee's Oct. 3-4 meeting showed David Blanchflower voted to lower interest rates by 25 basis points to 5.5 percent.

Analysts had expected a unanimous vote for steady rates and the minutes are likely to boost expectations for a rate cut as soon as November, particularly as all MPC members appeared to agree that financial market turmoil would hit the economy.

"The preparation of the November Inflation Report and its projections would give the committee more opportunity both to assess the impact of market turbulence and other developments in order to reach a more considered judgement and to explain its policy stance," the minutes said.

However, the monetary policy easing is not a done deal, analysts said.

"It doesn't necessarily suggest at all we'll see a rate cut this year," Mitul Kotecha from Calyon told "Squawk Box Europe," adding that "the minutes weren't as dovish as the market had expected."

MPC members argued since a cut had not been widely expected this month, there was a danger that any easing would be read as a sign the economy and inflation were shifting decisively downwards.

"It was possible that a cut in rates this month could be misinterpreted as a signal that monetary policy was focused on supporting the financial system and not on meeting the inflation target," the minutes said.

Little Impact from Credit Crunch

However, the case for lowering borrowing costs immediately included the argument that an early move could prevent a sharp slowdown and be reversed quickly if necessary.

Against that, MPC members felt it was important to allow the economy to slow at least as much as predicted in the last inflation report in August.

Moreover, the credit crunch in financial markets had so far had little impact on consumer or business confidence.

"There had only been limited signs of slowing in the economy," the minutes said. "Survey measures of business activity had stayed firm and, if anything, pointed to slightly stronger growth in the third quarter than had been expected at the time of the August report."

Blanchflower wanted a cut because he thought the growth outlook published in August had already looked a little optimistic and downside risks had increased since then.

The BOE's easing cycle is more likely to start from the beginning of next year, ING Bank's Rob Carnell said in a market note.

"It seems that (the BOE) judged that the economy had to slow a little in order for the inflation target to be met," Carnell added.