Newspaper article The Evening Standard (London, England)

Bank Hints UK's Dose Will Be Just a Small One; Trouble Ahead: Mervyn King Has Warned the Economy Faces Its Toughest Challenge since 1ee

Newspaper article The Evening Standard (London, England)

Bank Hints UK's Dose Will Be Just a Small One; Trouble Ahead: Mervyn King Has Warned the Economy Faces Its Toughest Challenge since 1ee

Article excerpt

Byline: NICK GOODWAY

THE Bank of England today gave its clearest signal yet that next month'sexpected cut in interest rates will be just a quarter-point, and that it willnot be panicked into following the US Federal Reserve's huge emergency cutyesterday.

Just one member of the Bank's powerful monetary policy committee voted for areduction in rates earlier this month, when the Bank left rates on hold at5.5%, today's publication of the minutes of the 10 January meeting reveal.

City economists had thought the vote had been much closer, with most predictingthat there had been a six-three split. But the minutes show the vast majorityof the committee agreed the short-term inflation outlook had "worsenedmarkedly" following rises in fuel bills and food prices.

Only the ever-doveish David "Danny" Blanchflower, who flies in from hisprofessor's chair in the US for the monthly meetings, felt the threat to growthoutweighed the pressure on prices. He voted for an immediate quarter-point cutto follow the one in December.

He said demand for UK goods Richemont and services, particularly from the US,had materially worsened and that meant the risk of a sharp and persistentslowdown in activity had increased.

But for the other eight members of the committee, inflation remained thegreatest risk. The minutes said they were still worried by falling house pricesand tightening credit conditions, and their knockon effects on consumer demand.

But the recently announced price increases by energy suppliers nPower and EDF,on top of rising petrol and food prices, "could put substantial upwardpressure" on inflation in the short run.

The MPC said it feared rate cuts in two successive months might suggest theBank was "focused more on stabilising demand than meeting the inflationtarget".

Details of the January rates vote come after Bank Governor Mervyn King warnedlast night that the UK economy faced its toughest challenge since 1997. …

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