FEARS of mounting inflation outweighed those of slowing economic growth as the Bank of England made a near unanimous decision to keep interest rates steady this month, it was revealed yesterday.
Minutes from the Bank of England's monetary policy committee (MPC) meeting showed members voted eight to one in favour of holding the rate at 5 per cent.
The minutes revealed most committee members felt a 25 basis point reduction would make it ha
rder to get inflation back to its 2 per cent target figure despite evidence of slowing economic activity.
The official cost of living index rose by 3 per cent last month, and is expected to rise further this year thanks to soaring fuel and food prices.
A flurry of poor economic data earlier this month, including historic lows for manufacturing and service-sector activity and the first fall in house prices for more than two years, had piled pressure on the MPC to make a back-to-back rate cut to 4.75 per cent.
But the minutes, published yesterday, said: "A further reduction in bank rates this month could create the impression that the committee was trying to stabilise output growth rather than maintaining its focus on the inflation target."
Bank of England Governor Mervyn King has to write a public letter to Chancellor Alistair Darling if inflation rises above 3 per cent, detailing what has happened.
One member of the committee voted for a 25 basis point rate cut, the minutes showed. David Blanchflower felt it was "important to look through the short-term spike in inflation" and instead concentrate on the "current and prospective weakness of demand".
The full article contains 280 words and appears in The Scotsman newspaper.
