960417

BoE governor recommends March 8 UK rate cut

LONDON: The minutes of the March 7 monthly monetary meeting between UK Chancellor of the Exchequer Kenneth Clarke and Bank of England governor Eddie George showed George recommended the quarter point rate cut on March 8.

The minutes quoted George as saying there was very little immediate inflationary pressure. "Output was probably continuing to grow below trend in the short run, with still some possibility that the risks were on the downside; but the bank expected demand and output to accelerate moving into the latter part of the year and in 1997," George said.

"Against that background the governor saw a case for some early modest further fall in interest rates consistent with meeting the inflation target; but with the possibility that rates would have to be raised again at some point further ahead, if monetary growth did not begin to moderate and when there was clearer evidence that the growth of demand and output had begun to accelerate," the minutes said.

While in terms of building credibility there was a case for lagging market expectations on the way down, the Bank thought a cut would be seen as justified in the markets and it saw no reason to delay, and therefore recommended a quarter point cut.

Clarke said he was optimistic on growth but noted it was still below trend. Accepting the governor's recommendation on rates he said he was ready to put rates up this year if that proved necessary.

His position remained that he would continue to be ready to move rates in either direction as the evidence justified, the minutes said.

Clarke said money supply data were still puzzling but "the broad money figures were distorted by the introduction of the gilt repo market and so they needed to be interpreted carefully."-Reuter