Enlarge imageLONDON (Reuters) - The Bank of England’s Monetary Policy Committee was split 7-2 in its decision to keep interest rates steady in April, as Marian Bell joined Christopher Allsopp in calling for a quarter-point cut.
Minutes of the April 9 and 10 meeting published on Wednesday showed that the MPC only discussed either cutting rates or keeping them on hold at a 48-year low of 3.75 percent.
Last month the committee also discussed raising borrowing costs and only Allsopp called for a cut.
But most members thought it was better to hold off from changing policy because they were waiting for the analysis in next month’s Inflation Report and the likely clearer picture on the economy that would emerge once the war in Iraq was over.
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The MPC was also concerned that a move in interest rates so soon after Chancellor of the Exchequer Gordon Brown’s budget on April 9 could be construed as a commentary on it.
"It looked likely that at the moment that the war in Iraq would be over quickly, so that uncertainty from this source would be less next month," the minutes said.
MPC members also argued that the weakness of sterling was another reason for keeping interest rates on hold as it could boost inflation both directly and indirectly.
The minutes said that it was more difficult to dismiss recent stronger-than-expected inflation as "spurious" as it had persisted for two months in a row.
Still, the impact of higher oil prices was now likely to be short-lived and would reduce inflation projections by 0.2 percentage points in the near-term.
But since the two-years ahead futures price of oil has remain unchanged, there was a likely to be a higher mechanical contribution to inflation further out, the BoE said.
The MPC also said that the global outlook seemed somewhat weaker than at the time of the February inflation report though the drop in oil prices and the rise in stocks in the second half of the month could stimulate activity.
The MPC also said that it would have to keep continuing a situation where inflation was likely to stay above its target though this was mainly due to temprorary factors, while growth remained below trend.
The main reasons for wanting a cut this month were the weaker global outlook, particularly in the U.S. It also seemed that UK output in the first quarter was lower than expected and it was not clear that the fall in the pound would boost trade when global demand was so weak.
The BoE also published a letter from Chancellor of the Exchequer Gordon Brown to Bank of England Governor Sir Edward George clarifying that he would be required to write an explanatory letter on deviating from the inflation target by more than once percentage point on the day any such data were published.
