Sterling falls on BoE minutes
19 December 2007
The Bank of England minutes released this morning confirmed the increased likelihood of continued interest rate cuts going into 2008. Governor Mervyn King and the rest of the MPC unanimously voted for a 0.25% cut lowering the base rate to 5.50% on the 6th December. This was the first time the Bank of England had cut interest rates in 18 months, as concerns mount about the slowing UK economy.
Sterling weakened on the news of a 9-0 decision to cut rates as the market was expecting a vote closer to 6-3. This was the first time since November 2001 that the MPC have unanimously voted for monetary policy loosening.
The minutes showed that policymakers discussed a range of options, including keeping rates on hold due to creeping inflationary pressures, whilst toying with a larger rate cut as the slowdown in the housing sector and credit crisis sink through into the wider economy. The continued financial turmoil coupled with tightening credit conditions has increased the downside risk to economic growth and subsequent inflationary pressures in the medium term.