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BoE voted 7-2 to hold rates Nov, Gieve wanted cut

LONDON - Bank of England deputy governor John Gieve joined arch dove David Blanchflower in voting for lower interest rates this month, but the other seven policymakers chose to keep them at 5.75 percent.

Analysts had expected minutes of the BoE’s Nov. 7-8 meeting, published on Wednesday, to show a 7-2 vote for no change. However, few had foreseen that the normally-hawkish Gieve would be the policymaker to switch sides.

Sterling fell against the dollar and hit a 4-1/2 year low against the euro as Gieve’s call for a cut boosted bets that the BoE could be preparing to lower rates as soon as next month.

But most economists still expect the Monetary Policy Committee to wait until early next year, especially as fellow deputy governor Rachel Lomax did not vote for lower rates this month, as had been widely expected.

“We suspect most members would like to hang on for firmer signs of a slowdown and price pressures easing before cutting rates, perhaps pointing to February at the earliest,” said Jonathan Loynes, an economist at Capital Economics.

“But much might depend on how market expectations shape up. If expectations for a cut in December start to build, the MPC might be reluctant to disappoint the markets.”

Gieve may have been swayed because of his brief which is to monitor financial stability. The Bank is under pressure to cut rates to shore up the economy in the wake of a global lending squeeze.

“With the continuing turmoil in financial markets and the consequent tightening of credit conditions, the balance of risks to growth was to the downside,” the minutes said, summarising part of the doves’ case.

Gieve has said that there may yet be more turmoil to come in financial markets.

“There is still a worry that we haven’t yet seen the bottom. Some markets are still very illiquid. As the year end approaches, we may see some tightening in money markets,” the Telegraph newspaper’s online edition quoted Gieve as saying. ”There still may be more bad news to come,” Gieve told a hedge fund conference.

However, the minutes showed that majority of the MPC had seen little sign of the credit crunch hitting British consumers and businesses so far.

They thought there was time to wait and see how the economy developed and were still worried about upside inflation risks posed by rising oil and other commodity prices.

“Moreover, since a reduction in Bank Rate was not widely expected this month, there was a danger that an immediate cut would be misinterpreted, precipitating an unwarranted further fall in the market yield curve,” the minutes said.