The Bank of England’s Monetary Policy Committee considered a more aggressive interest rate cut in December, but settled unanimously on the 100 basis point reduction, the MPC Meeting Minutes revealed today.

MPC officials noted that “the significant probability of undershooting the inflation target in the medium term,” warranted a cut of at least 1.00%. Interestingly, the Committee also noted that “the scale of the downside risk to inflation,” might justify a “larger cut”.

The commentary from December 03-04 points towards the likelihood of more rate cuts to come from the BOE. This will take the Official Bank Rate below 2.00 percent for the first time since The Bank was founded more than 300 years ago.

Indeed, the risks to the economy were deemed substantial enough that a cut of less than 1.00% was not even considered. The Committee agreed, “that a significant margin of spare capacity would open up over the next couple of years”.

However, the unanimous 9-0 decision was taken on a 1.00 percent easing of monetary policy to ensure the stability of financial markets. At the time The Bank felt that a 100 basis point cut was “priced in” to the market and a more aggressive cut “could cause an excessive fall in the exchange rate… and undermine confidence in the economy more widely”.

The UK’s Official Bank Rate currently stands at 2.00% ahead of the Bank of England’s next Monetary Policy Committee meeting on Jan 7-8 2009.

The Bank of England’s Monetary Policy Committee voted unanimously to cut rates by one and a half percent in November, the BOE MPC Meeting Minutes revealed today.

The 9-stong committee also considered a larger 2.00% cut thanks to a deteriorating economic outlook and the prospect of falling inflation. The Bank’s Inflation Report revealed that inflation would likely fall to “well below” its 2.0% target in 2009 and the Committee would have been privy to this information prior to its release.

However, the prospect of a 2.00% cut was rejected in favour of a more measured approach to the easing of monetary policy. The MPC believes that consumer confidence will be supported if the bank eases rates gradually as and when more signs of economic weakness become apparent. The Bank also believed that drastic cuts could weaken the GBP to a level that might create upward inflationary pressure.

The decision to measure interest rate cuts was key as the MPC wanted the opportunity to explain its position in the November Inflation Report. It seems that the Bank is well aware of the importance of keeping the British consumer informed. If the UK economy is to recover, or at least minimise recession, consumer confidence and spending will be key.

The Bank of England’s MPC voted unanimously to cut rates by 0.50% to 4.50% on October the 8th as part of the coordinated move by major central banks.

BOE Governor King briefed the committee on discussions with other major central banks and asked them whether they wished to support the action.

The Monetary Policy Committee has decided that the recent credit market turmoil has reduced the risk of increasing inflation in the English economy. “All these developments pointed to the need for a relaxation in monetary policy. In the current financial market turbulence, the reduction in Bank Rate that would ultimately be required to meet the inflation target was very difficult to gauge.”

This news comes as no real surprise to economists with BOE Governor King’s speech last night dominating headlines.

King admitted that the UK economy was probably already in recession, for the first time in 16 years.

“Not since the beginning of the First World War has our banking system been so close to collapse,” said King, frankly. Traders are already pointing to the use of the word ‘recession’ as an indication of yet more interest rate cuts to come. The market is currently anticipating another 50 basis point cut at the November meeting.

Since King’s comments and the MPC Meeting Minutes the Pound Sterling has fallen to a five-year low against the Dollar reaching 1.6134 in New York trade.

The Bank of England’s (BOE) Monetary Policy Committee voted 8-1 to keep interest rates on hold at 5.00% in September, the meeting minutes published today show.

Once again David Blanchflower voted for a cut, this time of 0.50%, but Tim Besley did not vote for a hike. The market had expected him to do so in an 8-1-1 vote split but it was not to be. So, today’s split is slightly dovish in terms of rate outlook from the Bank.

On closer examination, today’s minutes show that the MPC considered the possibility of both raising and cutting rates before deciding to remain unchanged. This open discussion highlights the difficult position members find themselves in. On the one hand there is record consumer inflation and on the other a slowing economy and increasing unemployment.

It will be very interesting to see how events since the September meeting are received by the Committee. Today we heard from National Statistics that Claimant Count Change increased by 32, 500 in August, the biggest jump since 1992. And it remains to be seen how the knock on effects of the fall of Lehman Brothers will impact the UK economy.

Related links: BOE MPC Meeting Minutes - Visual Analysis for the BOE MPC Meeting Minutes