Only two members of the Bank of England’s nine-strong Monetary Policy Committee (MPC) voted against the surprise decision to cut interest rates to 3.75%, according to the minutes of the latest meeting.
The minutes record the seven members of the committee who argued for a rate cut included Sir Edward George, governor of the Bank of England and deputy governor, Mervyn King.
King, governor-elect of the Bank of England, said the cut in interest rates made by the MPC was done to prevent inflation from falling lower than its target rate of 2.5%
Figures released by the Office for National Statistics show the Retail Price Index (RPI), which includes mortgage interest payments, is currently running at 2.9%, significantly higher than the target rate. However, this is expected to drop as activity in the housing market softens this year.
King said: ‘Although inflation has picked up since November, the factors behind that rise are expected to be temporary. Hence the MPC was faced with an outlook in which, looking two years or so ahead, the odds were that, in the absence of a reduction in interest rates, inflation would have fallen below the 2.5% target. That is the explanation of last week’s decision.’