Majority of MPC favoured rate freeze

23 July 2008

Minutes from the MPC meeting reveal that while the majority wanted to hold rates, Tim Besley was in favour of an increase of 0.25%, and David Blanchflower took an opposing stance and called for a 0.25% reduction.

But the general consensus of the members was that in the light of low consumer confidence and a fragile financial sector, any increase in the base rate could potentially trigger a downward momentum to the economy.

The committee indicated that any change in rates would be better communicated alongside the Bank of England’s August inflation report.

Ross Bowen, managing director of Connells survey and valuation, says: “While there is evidence of inflation, the MPC seems to be realising the gathering pace of an economic slowdown is a greater concern.

“With market interest rates so far above bank base rate and continued restrictions on lending, more action is needed, and now. We need the government, regulators and the BoE to free up the financial and mortgage markets, restore lender and consumer confidence and help get more people moving again.”

Nicholas Leeming, director of Propertyfinder.com, says: “The MPC’s wrangling over base rates seems almost irrelevant at the moment. Money markets have driven effective interest rates much higher, and lenders are pricing their products accordingly.

“Leaving rates as they are recognises the likely effect that a slowing economy will have on inflationary pressures."

He adds: "We now need to see the BoE taking action to increase liquidity in the capital markets and to oversee a rapid restoration in lenders’ balance sheets so they actually have some money for households and companies to borrow.”