18/06/2003 17:26
The weakness of the pound coupled with stronger than expected domestic demand persuaded a majority on the Bank of England's monetary policy committee to leave rates unchanged this month.
The minutes of the MPC's June meeting showed that six of the committee's 9 members had voted to keep rates at 3.75 per cent.
The majority argued that while international demand appeared slightly weaker than expected, it now looked more likely that the fall in the pound was likely to be sustained. This would put upward pressure on inflation in the medium term.
The slowdown in consumer spending had also been less dramatic than previously predicted.
In addition, the faster-than-expected pace of house price inflation, they said, suggested that it was now less likely that there would be an abrupt correction in the housing market.
Finally, the committee expressed concern that a cut in interest rates could encourage a further build up of consumer debt, adding to the financial vulnerability of households.
But the minutes indicated that the decision was finely balanced, with members separated mainly by their assessment of future risks.
Economists were divided over whether the decision made a cut in rates more or less likely over coming months.
The fact that sterling has recovered slightly and underlying inflation has eased from 3 to 2.9 per cent in May, have convinced some that policy will be eased at the next meeting.
"I don't think it will take much more weak data to convince the MPC of the need for another cut," said George Buckley, an economist at Deutsche Bank.
The minutes of the MPC's June meeting showed that six of the committee's 9 members had voted to keep rates at 3.75 per cent.
The majority argued that while international demand appeared slightly weaker than expected, it now looked more likely that the fall in the pound was likely to be sustained. This would put upward pressure on inflation in the medium term.
The slowdown in consumer spending had also been less dramatic than previously predicted.
In addition, the faster-than-expected pace of house price inflation, they said, suggested that it was now less likely that there would be an abrupt correction in the housing market.
Finally, the committee expressed concern that a cut in interest rates could encourage a further build up of consumer debt, adding to the financial vulnerability of households.
But the minutes indicated that the decision was finely balanced, with members separated mainly by their assessment of future risks.
Economists were divided over whether the decision made a cut in rates more or less likely over coming months.
The fact that sterling has recovered slightly and underlying inflation has eased from 3 to 2.9 per cent in May, have convinced some that policy will be eased at the next meeting.
"I don't think it will take much more weak data to convince the MPC of the need for another cut," said George Buckley, an economist at Deutsche Bank.
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