BoE voted 6-3 to cut rate

August 15, 2001 Posted: 1136 GMT

LONDON (CNN) -- The Bank of England Monetary Policy Committee voted 6-3 to cut UK interest rates a quarter percentage point in August as the economy slowed.

The rate cut earlier this month was the fourth in 2001 and took the markets by surprise. Policy makers had considered a deeper 0.5 percent cut in rates, according to the minutes of the August 2 meeting released today.

Deputy Bank of England governors Mervyn King and David Clementi were opposed to the move and argued the rate should have been left at 5.25 percent.

"The decision to cut by a quarter point was about right," Jeremy Hawkins, an economist at the Bank of America, told CNN. "What the meeting does show was there was a wide range of views and some had considered a 50 basis point (0.5 percentage point) cut but there was concern that could open up the imbalance of a two-speed economy."

The UK's manufacturing sector is in recession but house prices are still galloping higher as consumers continue to feel affluent, despite announcements of jobs losses by some of the country's biggest companies.

Figures released on Wednesday also showed that average wages in the world's fourth-biggest economy grew at an annual pace of 4.8 percent in the three months ended June 30.

Another report showed that unemployment fell to a 26-year low in July. The number of people receiving unemployment benefit fell by 12,800 to 950,300. The jobless rate was unchanged at 3.2 percent.

Bank sees slowdown for UK

Those members of the policy committee in favour of a rate cut at the early-August meeting argued it would "provide a degree of insurance against a further deterioration in the outlook" for the British economy. The Bank's own economic forecasts last week showed the British economy headed for a noticeable slowdown, with subdued inflationary pressures.

The Bank forecast economic growth would slow to just 2 percent this year -- below the average growth rate in Britain over the past four decades, which is around 2.3 percent. The Treasury – the UK government's finance ministry -has forecast growth between 2.25 and 2.75 percent for 2001.

"The outlook for the world economy had deteriorated," the Bank said. "World industrial production has been falling, and a slowdown was clearly set to be more prolonged that in 1998-99."

Japan "seemed to be heading for a recession" and the outlook for the euro zone "was now weaker than previously assumed," it said.

Germany's DIW economic research institute, one of the country's six leading economic institutions, on Wednesday said it estimated economic growth slowed in the year's second quarter to 0.7 percent year-on-year from 1.6 percent in the first quarter.

"Germany is therefore now in a phase of economic stagnation, " DIW said.

Germany is the euro zone's biggest economy.

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