Bank minutes may signal rate restraint

The minutes of the Bank of England monetary policy committee's (MPC's) January meeting have been published, revealing that the threat of inflation has had a restraining effect on its interest rate policy.

As a result, interest rate cuts will be limited, a leading economist has said, something which could restrict falls in mortgage costs and therefore make self build a more cost-effective alternative for aspiring homeowners.

At the meeting the MPC voted eight to one against a second rate cut in a row, citing rising inflationary pressures as a major factor.

Noting that "the short-term inflation outlook had worsened markedly", the minutes listed rising food, oil and domestic fuel prices as causes for concern.

Responding to these comments, Investec Securities chief economist Philip Shaw said this situation is likely to continue restraining the MPC from major cuts in interest rates.

While predicting there will still be a cut next month, he added: "barring a sudden deterioration in the growth outlook the MPC is unlikely to act aggressively."

In December, the MPC revealed that it had considered taking radical action and cutting rates by more than 0.25 per cent.


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