It’s time for the Bank to be bolder with its rate-cutting

The latest cut in interest is in but the Bank of England’s ratesetters are sharply divided.

- JAMES MOORE

As the City expected, a quarter point was shaved from base rates, to 4.25 per cent, continuing the cautious approach favoured by the majority on the Bank’s Monetary Policy Committee (MPC).

However, the MPC sprang a surprise with the vote. At 5-4, it was on a knife edge. Two of the dissenters, Swati Dhingra and Alan Taylor, both external appointees, favoured a bigger downward move of 0.5 per cent. By contrast, the other pair, the Bank’s chief economists Huw Pill and the hawkish Catherine Mann, wanted no change.

It is no bad thing to have heterodox thinking on a body of this importance. That different options are held, expressed and robustly discussed is greatly preferred over the adoption of a cosy consensus.

However, this level of division reflects the fact that the MPC is trying to navigate through a squall without the benefit of a decent compass. It lacks data on how Donald Trump’s trade wars will affect the UK, and hasn’t been briefed on the “full and comprehensive” US trade deal negotiated by Keir Starmer.

It thinks inflation, which stands at 2.6 per cent and has been coming in below forecasts, could go either way as a result of the Trump-created global eco-chaos. Its current forecast is that a mini-spike, topping out at 3.5 per cent, is still coming. However, the Consumer Prices Index (CPI) is then expected to fall back towards the 2 per cent target later in the year. Trouble is, the current uncertainty makes such forecasting even less reliable than usual.