Bank of England voted 8-0 to hold rates at 4.75 percent: minutes

LONDON - Bank of England (BoE) rate-setters were united in their decision to keep British borrowing costs at 4.75 percent earlier this month, minutes of their most recent meeting showed on Wednesday.

By (AFP)

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Published: Wed 20 Sep 2006, 6:57 PM

Last updated: Sat 4 Apr 2015, 4:23 PM

The minutes revealed that on September 7 members of the central bank’s Monetary Policy Committee (MPC) voted 8-0 to keep on hold its key “repo” rate -- the rate at which the central bank lends to commercial banks.

The BoE decision had been widely predicted by economists and came after it had in August voted 6-1 to raise borrowing costs by a quarter-point for the first time in two years to help control British inflation.

Minutes from the latest meeting meanwhile revealed that the eight-strong MPC believed that recent economic data did not warrant another move higher in September. However, the panel’s deliberations suggested a clear slant towards another rate hike.

The MPC said Consumer Price Index (CPI) inflation was projected to remain above the Bank’s annual 2.0 percent target for “some time” and that recent data continued to justify the quarter-point rate hike in August.

That led some analysts to forecast on Wednesday another quarter-point increase before the end of 2006.

“Overall, the fact that the MPC expects CPI above the British government’s target of 2.0 percent for quite some time, combined with elevated inflation expectations, speak in favour of another rate increase to 5.0 percent in November,” HSBC economist Astrid Schilo said.

ING Bank economist James Knightley, said the minutes “retained a hawkish edge” and also forecast interest rates to rise to 5.00 percent in November.

British 12-month inflation rose to 2.5 percent in August from 2.4 percent the previous month, according to official data published after the latest BoE rate decision.

It was the fourth month in a row that the inflation rate has stood above the government’s 2.0 percent target, while it equalled the highest rate since records began in January 1997.

The Bank of England is tasked by Prime Minister Tony Blair’s Labour government with keeping the annual pace of inflation within 1.0 percentage point either side of a 2.0-percent target.

However, BoE governor Mervyn King has said there is a 50-50 chance that inflation could rise above 3.0 percent by the beginning of 2007.

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