December 20, 2001	Thursday	Shawwal 4, 1422

LONDON, Dec 19: The Bank of England voted overwhelmingly to leave borrowing costs steady at 4 per cent earlier this month, worried that too much easing risked over-stimulating the economy.

Minutes of the Monetary Policy Committee’s meeting on December 4-5, released on Wednesday by the Bank, showed that only two of the committee’s nine members — Sushil Wadhwani and Christopher Allsopp — backed a quarter point reduction.

However, economists thought there was still scope for lower rates especially if the economic outlook worsened in the new year, putting odds on a February rate cut to coincide with the Bank’s next quarterly inflation report.

The slower world economy, made worse by September’s attacks on the United States, has already led the MPC to cut rates seven times this year to a 37-year low.

“It seems that once you go through all the entrails, the Bank is still operating with an easing bias,” said Jeremy Hawkins, economist at Bank of America.

“At the end of the day, we still think they’ll cut, not withstanding strong UK retail sales...We are going for a cut probably in February next year,” he added.

But financial markets are betting on interest rates resuming their upward track around the middle of next year as Britain’s economy is likely to outgrow other leading industrialised nations.

“Given the pre-emptive nature of the MPC, we do believe that rates are likely to go up before the European Central Bank and possibly the Federal Open Market Committee,” said John Butler, UK economist at HSBC.

In the minutes, the MPC justified its decision to leave rates on hold for the time being by citing tentative signs that confidence had stabilised and perhaps even improved.

Although there was the danger of doing too little to prop up domestic demand, there was equally the risk of doing too much.

That could lead to the danger of “creating difficulties in meeting the inflation target further out by allowing households to build up excessive levels of debt, which might in turn lead to a sharp correction in consumer spending,” the minutes stated.

The MPC has a government-set target for underlying inflation, also known as RPIX, of 2.5 per cent. Underlying inflation fell to just 1.8 per cent in the year to November, pushed down by cheaper petrol prices and its equal lowest since records began in 1975.—Reuters