Bank of England's financial stability chief wants rate cut

By Edmund Conway
The Telegraph, London
Thursday, November 22, 2007

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=EWJQONSMADPRZQFIQ...

The Bank of England's financial stability chief has called for interest rates to be cut, amid fresh signs that the credit crunch is worsening and that the high street is already starting to suffer.

Minutes to the Bank's interest rate meeting this month revealed that two of the nine members -- deputy governor for financial stability Sir John Gieve and David Blanchflower -- voted to cut borrowing costs to 5.5 percent.

The documents released yesterday also showed that the Bank's own private surveys of the UK economy depict it weakening more dramatically than the Office for National Statistics has reported.

Although the tone of the minutes was balanced, with repeated warnings about inflation indicating an imminent cut is not a foregone conclusion, economists said Sir John's vote raised the likelihood next month's decision will be tight.

It came as conditions in the credit markets worsened again. The benchmark London Interbank Offered Rate (Libor) rose again to 6.52 percent for three-month money -- the highest level since the peak of the credit crunch in early September. With worried traders abandoning risky investments in favour of government bonds, yields also soared in the UK, Europe, and America.

London's FTSE 100 index fell 155.6 points to 6070.9 and the FTSE 250 slid 287 points to 10212 on fears that the credit crunch could resurface, pushing banks into trouble, and hitting the wider economy. Traders are equally concerned about the high street, with consumers likely to be hit by higher mortgage costs. Retail shares fell 4.2 percent on the day.

London's retail shares were among the day's biggest fallers, dropping 4.2 percent.

The MPC minutes revealed that the committee considered an immediate cut, though eventually ruled it out.

The two who voted for lower rates warned that "waiting for further evidence before cutting interest rates towards a more neutral level risked making the slowdown sharper and longer than it needed to be."

The minutes said much now depended on the path of equity and property prices over the coming months.

The Bank also released its own internal survey of economic conditions around the UK, which uncovered a slowdown in retail sales growth to the weakest since the first half of 2006. Business services activity was the worst since the survey started in early 2005.

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