Press Release Summary: The banks are not agreeing on lowering the interest rate as the members of the minutes are seeing at the uncontrollable inflation in the upcoming future.
Press Release Body: LONDON - Thursday, May 22, 2008 - (Ask4loan) - With the other eight Monetary Policy Committee members keen to focus on inflation rather than growth, only policymaker David Blanchflower of the Bank of England wanted to lower the interest rates this month.
According to the minutes to the May 7-8 meeting, most members were worried that lowering rates from five percent would make it harder to control inflation expectations, given a shock spike in consumer price inflation to three percent in the month of April.
On this issue, Peter Dixon, an economist at Commerzbank suggested \"It\'s a tactical one this month because inflation is not sufficiently high to warrant rate hikes nor growth sufficiently low enough to guarantee cuts. So the rates should remain at five percent until the data breaks either way.\"
As the minutes showed little appetite on the MPC for a rate cut any time soon thus, the rate of sterling rose from earlier lows and interest rate futures edged lower.
\"A further diminution in Bank Rate this month could create the impression that the Committee was trying to brace output growth rather than maintaining its focus on the price rise target,\" the minutes said. \"For most members, a diminution in Bank Rate this month would make it more difficult to keep inflation expectations in line with the objective,\" added the minutes.
In its May inflation forecasts, the Bank of England signaled that inflation could rise to near four percent this year and overshoot the two percent target in two years\' time if rates fell in line with the expectations of market.
In the minutes meeting, the majority voting for steady rates in May was split into two camps over the downside risks to inflation from a sharp slowing in the economy.
\"For some members, the economic system had shown considerable resiliency in the face of variation in credit terms. It was achievable that spending would also be little affected by the current pressures on the balance sheets of banks,\" said, the minutes.
However, Mr David Blanchflower, felt the Committee should look beyond the current spike in inflation as there was a clear risk of inflation undershooting the target because of weak demand now and in the upcoming times.
On this issue, a senior currency strategist at Calyon, Mr Daragh Maher stated \"The disappointment for doves is that no one else made the case for another rate cut.\"
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