The Bank of England considered a more aggressive interest rate cut at the last meeting of the Monetary Policy Committee (MPC) but felt such a move could have a destabilising effect, it emerged this morning.

The minutes of the MPC meeting on December 3 and 4 show that the nine members of the committee considered a bigger cut than the one-point reduction to 2 per cent eventually announced.

It was decided that a one-point cut was sufficient after the committee concluded that financial markets had priced in such a cut and there was a risk that going further could cause an excessive fall in the exchange rate.

The minutes add: "There was also a risk that an unexpectedly large cut could undermine confidence in the economy more widely.

"A cut of 100 basis points would mean that the level would have been reduced from 5 per cent to 2 per cent in just eight weeks. Given the uncertainty inherent in the transmission mechanism, it was difficult to be certain that rates needed to be cut by more or faster than that."

The committee said that the decision had also been swayed by the "substantial measures already taken to support the financial system and to boost demand through fiscal policy".

The minutes show that the decision to go with a one-point cut was unanimous.

Analysts suggested that the decision yesterday by the US Federal Reserve to slash rates to a range of between 0 per cent and 0.25 per cent would increase the chances that the MPC could make fresh cuts at its next meeting.

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