The Bank of England's monetary policy committee voted 7-2 to hold interest rates steady earlier this month amid concern that a rate cut would feed the housing market frenzy and further boost consumption, it emerged yesterday.
Minutes from the November 6-7 meeting showed that anxieties about the housing market boom and consumption growth eclipsed concerns about the world economic outlook, especially signs of a slowdown in the US economy.
Bank minutes say: “A reduction in interest rates now risked stimulating house prices and household borrowing even further, increasing the risk of a sharper fall in consumption at some point in the future,” adding that if any downward risks began to emerge, “there would be time to reduce rates to keep inflation on target around the two-year horizon.”
In October, three members of the MPC had voted for lower borrowing costs, but this time Kate Barker switched camps while Christopher Allsopp and Steven Nickell still favoured a 0.25% cut.
Many economists thought the MPC would lower rates at its November meeting, especially as the US Federal Reserve had cut rates yet again just days before the MPC meeting. But as the Bank minutes stated: “There was no particular reason, in current circumstances, for policy rates of different countries to change in tandem.”
Today's report did not rule out the possibility that a cut in interest rates could still happen.
“If any of the downside risks to demand began to crystallise, there would be time to reduce rates to help keep inflation on target,” the minutes said.
But the fact that fewer members voted to cut rates in November reduces the likelihood of lower borrowing costs in the foreseeable future. UK official rates are at a 38-year low.