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MPC voted 8-1 for 0.5% rate cut

Minutes from the Bank of England’s Monetary Policy Committee meeting show the committee voted 8-1 to cut interest rates by 0.5% in February.

The Bank cut rates to 1% from 1.5% in February, the fifth cut since October.

David Blanchflower was the only member who voted against a 0.5% cut and wanted to see a 1% drop down to 0.5%.

Notes show members voted against a larger rate cut because of the possible adverse impact it could have on lending.

Notes say: “The short-term market interest rates that Bank Rate sought to influence could not go far, if at all, below zero.

“Furthermore, at very low rates of interest, the stimulus that a reduction in Bank rate could provide was likely to be much reduced.

“Indeed, there might even be a point at which further cuts in Bank rate could have an adverse impact on the economy since banks and building societies maintained a spread between their deposit and lending rates to cover the costs of providing banking services and to make a return on capital.”

It adds: “Those deposit rates tended to lie below Bank Rate. Once those deposit rates were at zero, any further falls in lending rates would squeeze the spread.

“At that point, banks might decide not to pass on cuts in bank rate, in order to mitigate the impact on their profitability; that would reduce the effectiveness of monetary policy.”


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