Difficult interest rate decision for Bank

23 July 2008

MPC voted three ways on whether or not to change interest rates in July

Seven out of nine members of the Bank of England Monetary Policy Committee (MPC) voted to leave interest rates unchanged at 5% in its July meeting. Of the remaining two, one voted to increase rates and one voted for a cut.

The split, deemed “a surprise” by BBC News, highlights the current challenge faced by the MPC to keep a balance between the economic slowdown and rising inflation.

The minutes of the MPC meeting on 9-10 July, which were released today, showed that Timothy Besley wanted to increase interest rates by 0.25% to 5.25%.

In a stark contrast, David Blanchflower voted to reduce the cost of borrowing by 0.25% to 4.75%.

The minutes said: “For all members of the committee, the decision was a difficult one.

“A rate change this month would be a surprise at a time when credit and other financial markets remained fragile,” it added.

According to BBC News, it is the first time the MPC has seen a three-way split on the topic of interest rates since May 2006.

Howard Archer at Global Insight said: “The three-way split in the MPC’s voting in July encapsulates the predicament that the Bank of England is in over a deepening economic slowdown yet elevated and rising inflation.”