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| Bank considered bigger rate cut | Bank considered bigger rate cut |
| (10 minutes later) | |
| The Bank of England's rate-setting body voted 9-0 to cut rates to 2% this month and considered a bigger move, minutes from its meeting have shown. | The Bank of England's rate-setting body voted 9-0 to cut rates to 2% this month and considered a bigger move, minutes from its meeting have shown. |
| The monetary policy committee (MPC) agreed that a cut in the Bank rate from 3% to 2% was the minimum needed. | The monetary policy committee (MPC) agreed that a cut in the Bank rate from 3% to 2% was the minimum needed. |
| However, it avoided a deeper cut on concerns it could hit the pound and undermine confidence in the economy. | However, it avoided a deeper cut on concerns it could hit the pound and undermine confidence in the economy. |
| The minutes are likely to reinforce expectations that UK rates will fall further in the months ahead. | The minutes are likely to reinforce expectations that UK rates will fall further in the months ahead. |
| Sterling falls | |
| The minutes showed that the MPC considered that a cut in the Bank rate to below 2% might be justified given the problems facing the economy. | |
| It's abundantly clear the MPC feels the stance of policy is still out of kilter with economic prospects Philip Shaw, Investec | |
| However, the committee noted that financial markets were expecting a one percentage point cut, and "there was a risk that going further could cause an excessive fall in the exchange rate". | |
| "There was also a risk that an unexpectedly large cut could undermine confidence in the economy more widely." | |
| The pound fell to another record low against the euro, with one pound worth 1.0984 euros, following the release of the minutes as expectations grew of further rate cuts. | |
| The weak state of the UK economy was also emphasised by the release of new unemployment data, which showed the highest jobless total for more than a decade. | |
| "It's abundantly clear the MPC feels the stance of policy is still out of kilter with economic prospects," said Philip Shaw at Investec. | |
| "We certainly think that another 50 basis point cut is due at the next meeting and our central case for interest rates remains they will dip below 1% in Q2. | |
| "The labour market data reinforce the background of a very weak economy with a horrendous 76,000 rise in the claimant count and employment beginning to fall sharply." | |
| On Tuesday, the latest inflation figures showed that the rate dropped to 4.1% in November. | On Tuesday, the latest inflation figures showed that the rate dropped to 4.1% in November. |
| Although this was still well above the 2% target rate, in a letter to Chancellor Alistair Darling the Bank of England governor, Mervyn King, said that inflation was set to fall "materially" below the target rate in the second half of 2009. | Although this was still well above the 2% target rate, in a letter to Chancellor Alistair Darling the Bank of England governor, Mervyn King, said that inflation was set to fall "materially" below the target rate in the second half of 2009. |