Bank Voted 8-1 to Keep Interest Rates on Hold This Month
May 21st, 2008 by 
Guy
The Bank of England voted 8-1 to keep mortgage interest rates on hold at 5%, minutes of its last meeting show.
There was only member of the bank’s Monetary Policy Committee (MPC) who favoured a cut which was David Blanchflower, who wanted a reduction to 4.75%.
Inflation has gone up in the last few months. This has been driven by high oil and food prices, making the MPC reluctant to cut rates despite the cooling economy.
The MPC made clear an interest rate cut is unlikely “for a few months”.
Latest figures showed the Consumer Prices Index reached an annual rate of 3%, above the government’s own target of 2% which further reduced the chances of a rate cut.
March’s 0.8% rise in consumer prices was the highest for nearly seven years.
If inflation rises above 3% then the Bank of England Governor Mervyn King has to write a public letter to the Chancellor Alistair Darling, to explain why and what has happened and what the bank is doing to lower inflation.
The MPC said that “with inflation set to move into letter-writing territory in the next month or two, the next cut looks unlikely to come for a few months unless the activity news is absolutely dreadful.”
“Given the sharp rise in inflation in April - figures that the Committee had at the time of their decision - it is not surprising that eight of the nine-strong MPC voted in favour of interest rates on hold two weeks ago,” said George Buckley, head economist at Deutsche Bank.
Peter Dixon of Commerzbank said the decision was “tactical” because inflation was not high enough “to warrant rate hikes nor growth sufficiently low enough to warrant cuts”.
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