Sir Alan Budd
Former chief economic adviser to the Treasury and founding member of the Bank
of England Monetary Policy Committee
HOLD
I vote for no change. I think that further cuts are likely to be justified but
the MPC can wait another month. There has been some de facto relaxation of
monetary conditions with the narrowing of credit spreads and the fall in the
exchange rate. So far there has been little firm evidence of a slowdown in
the growth of demand.
Claudio Costamagna
Former chairman of Goldman Sachs investment banking operations in Europe, the
Middle East and Africa
CUT – by a quarter-point
As for this month's vote, I am going for a 25 bp reduction, the main reason
being a general fear of a substantial slow down in the economy with
inflation pretty much under control.
Bronwyn Curtis
Chair, Society of Business Economists
HOLD
The good news is that the actions taken by the central banks in December have
reduced the stresses in the money markets. The bad news is that sterling has
dropped sharply and inflation risks have risen.
Timing is important. I would not vote to cut the Bank Rate while sterling is
dropping so quickly as it could precipitate a further sharp sell-off.
Sterling has already fallen 4 per cent since the last meeting - the biggest
monthly fall for 5 years - and is now 9 per cent lower than six months ago.
Overall monetary conditions are now much looser than they were after the
recent falls in sterling and market rates and so there is some room for
manoeuvre in terms of the timing of rate moves.
US and European economic indicators have deteriorated and the Bank’s latest
credit conditions survey reflected the tightening in borrowing terms for
firms and households. The UK purchasing managers index was at its lowest
level for nearly 5 years in the fourth quarter and the pace of decline in
the housing market is accelerating. Retail energy prices though are adding
to inflationary pressures. Petrol prices are likely to push December
consumer prices higher and Npower, one of the larger suppliers of gas and
electricity, has already announced price rises.
Overall there is a finely balanced “barbell effect” - higher input prices
versus lower growth - and much depends on how much weaker economic growth
will offset the adverse effects of higher energy and food prices as well as
the depreciation in the currency.
Geoffrey Dicks
Chief UK Economist, RBS Global Banking and Markets
CUT – by a quarter-point
UK interest rates are at the wrong level for where we are in the economic
cycle. The MPC should understand this and lower interest rates by 25 basis
points this month and again in February. A cumulative 50 basis point cut
would get rates to a more neutral level which at least would allow the
Committee to pause. The situation is similar to 1998-99 when the MPC
recognised that rates of 7.5 per cent were far too high and cut five months
in a row and by a cumulative 200 basis points. The current level of rates is
not so obviously out of line as it was in 1998 but the case for urgent,
remedial action is just as strong.
Anatole Kaletsky
Editor at Large and chief economics commentator, The Times
CUT – by a quarter-point
I vote for a 25 basis point cut, because economic figures from the US
deteriorated sharply last month, suggesting that the credit crunch and
housing collapse could be starting to have a major impact on consumption and
eocnomic activity - and the UK economy is likely to follow a similar pattern
in the months ahead. While a single month's figures are not conclusive and
could well be revised upwards, financial pressures show few signs of
improvement and what began as a liquidity problem is turning into a bank
solvency crisis. A pre-emptive monetary easing is therefore now justified.
The only sensible altenative to a cut of 25 basis points today would be for
the MPC to hold off for this month to await further statistics, but express
a clear willingness - in advance - to cut by 50 basis points or even more in
February, if economic conditions continue to detereiorate.
Rupert Pennant-Rea
Former Deputy Governor of the Bank of England; chairman of Henderson fund
managers
HOLD
Economic growth is slowing down – and it needs to. By historical standards,
the savings ratio has been unsustainably low, the external deficit
unsustainably large, housing (relative to incomes) uniquely overpriced. More
important, without an economic slowdown a bad inflation picture would simply
get worse. CPI inflation is currently above target. The 12 month increase in
RPI is over 4 per cent. Private-sector wage settlements are on the rise. The
public’s inflation expectations have just jumped, and the bond markets are
telling us that the UK’s long-term expected inflation rate is over 3 per
cent, the highest of the G7 countries.
Of course, these clear messages become irrelevant if the economy is already
being crunched by much tighter credit. So far the evidence does not support
such fears. If anything, monetary conditions are now easing: market rates
have come down in the past month and sterling’s trade-weighted value has
fallen 8 per cent since July. For the MPC to cut twice in a row would look
panicky. Better, this month, not to change.
Sir Steve Robson
Former Second Permanent Secretary, HM Treasury
HOLD
Amidst all the hand wringing about economic slowdown two things tend to get
overlooked. First, the Bank is required - for good reason - to put control
of inflation before any other consideration. Second, attempts to use
monmetary policy to provide a stimulus carries real risk of another debt
fuelled bubble. Seen from this perspective, the inflationary risks are very
real.
The CPI is already high and there are more pressures in the pipeline - survey
data on output and input prices, earnings increases, oil and energy price
rises. The issue for the Bank is whether the prospective slowdown is more
than enough to keep inflation at the target level.
The economic data is mixed and certainly not conclusive on this point. In
addition the economy is already experiencing some monetary loosening as a
resiult of the fall in sterling. More loosening by the Bank would be unduely
risky.
Sushil Wadhwani
Former external member of the Bank of England Monetary Policy Committee and
chairman of Wadhwani Asset Management
CUT – by a quarter-point
I would vote to cut the Bank rate by a further 25 basis points. Last month I
had expected a second cut would be required, and developments over the month
have been broadly in line with those expectations.
a) Most importantly, I had expected the US economy to display further signs of
weakness - recent data have been consistent with that notion, and there are
also growing signs of this weakness spreading. Stock markets have weakened
further.
b) Credit conditions remain tight. Though Libor rates have come down relative
to the policy rates following the central bank money market auctions, the
Bank's own survey points to evidence of changes to lending practices, with
companies and individuals experiencing difficulties.
c) We have seen more weak outturns in survey data on output and consumption,
and increasing signs that the housing market is turning, with falling prices
and lower activity. The anecdotal evidence about retail sales over Christmas
(e.g. the stock market reaction to retailer announcements) might be
consistent with consumption being weaker than is embodied in the MPC's
projections.
d) Although oil prices have risen and the sterling exchange rate has fallen,
the pass-through of these cost pressures is likely to be modest in the
current economic climate. Also, a failure to cut interest rates in the next
two months will cause the pound appreciate again.
e) A further cut is supported by the November Inflation Report projections,
and it is usually best to be pre-emptive.
Martin Weale
Director, National Institute of Economic and Social Research
HOLD
I am voting for no change. There is some evidence of weaking in the economy
which is not very surprising and is a good thing given the growth we saw in
the summer. But the evidence is not very strong and to cut rates for the
second month in a row might give the impression that the Bank was keen to
support house prices when in fact it should be pleased that house prices are
rather weak.
That said, I think there will be another cut fairly soon.
Interesting that there is such a wide gulf between the opinions on inflation. Inflation is inflation -- it is where it is now and it is relatively easy to figure out by those doing the Math. I can only assume those with the fears work to the realities of true inflation -- INCLUDING HOUSE PRICE INCREASES that even at 5.4% over the year is still above the 2% that the BoE wants, and those that suck up to Gordon's smoke and mirror scheme of hiding the truth. I wonder why Gordon doesn't remove all price increases out of inflation and only figure in price drops. No doubt such a method would help one person sleep at night -- him.
Paul, London, Canada