Sir Alan Budd
Former chief economic adviser to the Treasury and founding member of the
Bank’s MPC
CUT BY A QUARTER-POINT
I vote for a 25bp cut. There are now signs that demand and output are slowing
down in the UK and there is stronger evidence of a slowdown in the rest of
the world, particularly in the US. It is sensible to make another cut at
this stage to help encourage demand. It may be that additional cuts will be
needed later in the year but there is no urgency and the MPC does have to
take account of the evidence that inflationary expectations have moved up.
Claudio Costamagna
Former vice-chairman of Goldman Sachs investment banking in Europe
HOLD
My vote for this week decision is to hold rates where they are, there is no
need to give clear direction and the debate between inflation and growth is
still wide open.
GEOFFREY DICKS
Chief UK economist, RBS Global Banking and Markets
CUT BY A QUARTER-POINT
The MPC's response to the credit crunch so far is inadequate — one 25bp cut is
not enough to offset the rise in market rates and reduction in credit
availability that we have had in the last six months. The MPC needs to look
through the pick-up in inflation that is coming from another round of energy
price hikes and recognise that the risks to economic activity are very much
to the downside and that in two years' time an undershoot of the CPI target
is far more likely than an overshoot. The debate should be between cutting
25bp and 50bp, not on whether to cut at all.
Martin Weale
Director, National Institute of Economic and Social Research
CUT BY A QUARTER-POINT
I am voting for a quarter point reduction this week. With inflation likely to
rise in the near term and growth for the last quarter still on trend there
is a case for waiting for the economy to slow a bit more before making a
cut. But overall I think the Bank can take the risk. The Bank needs to be
measured. Since low interest rates caused the debt problems which we are now
living with, to expect low interest rates to solve the problem by
encouraging people to take on more debt is obviously mistaken. The reality
is that we will have, and probably need a period of slow economic growth.
Bronwyn Curtis
Chair, Society of Business Economists
CUT BY A QUARTER-POINT
Liquidity in the wholesale credit markets has improved but the effect of the
credit crunch is far from over. Banks are still tightening their lending
criteria and the rates being charged to the private sector are hardly
changed from mid 2007. The interest sensitive sectors like housing and
corporate investment are already showing signs of stress. The housing market
has greater falls ahead and the deteriorating investment climate adds to the
downside risks to growth.
Elsewhere the negative mood in the financial markets shows no sign of easing.
We've also had a gloomy global outlook from the IMF and deep interest rate
cuts from the Fed which smack of panic that the US economy will dip into
recession.
Even though there is a chance that cpi will climb above 3% in the second half
of the year and expectations of future inflation have risen, slower growth
will dampen inflation in 2009. Second round effects via higher wage
settlements have been relatively muted. I expect that to continue.
Sir Steve Robson
Former Second Permanent Secretary to the Treasury
HOLD
Hold. Economic activity is clearly slowing in the UK but inflation is not. The
prime objective should be to get inflation under control, not to reflate
demand. Slowing activity alone does not look likely to be enough. All the
inflationary signals point to unchanged rates. The CPI is above target and
set to rise. Input price rises are at their highest since the survey began
in 1999. Output price rises are at their highest for 3 years. Inflationary
expectations amongst both firms and households are worryingly strong.
Rupert Pennant-Rea
Former Deputy Bank of England Governor; chairman of Henderson fund managers
CUT BY A QUARTER-POINT
The way a Central Bank conducts monetary policy is always important - and in
today's uncertain world, the "how" matters almost as much as the "what".
After pausing last month, the MPC can now consider the case for a further
cut in rates without appearing to be acting out of panic or under pressure.
On balance, there is a reasonable case for a precautionary cut, because
accumulating evidence suggests the economy is now slowing to somewhere below
its underlying growth rate, so inflationary pressures should start to ease
in due course. Although there is an argument for delaying by a month, my
preference would be for a quarter-point cut now.
Anatole Kaletsky
Editor at Large and chief economics commentator, The Times
CUT BY A HALF-POINT
I vote for a rate cut of 50bp. Last month the MPC decided to wait for further
evidence on economic and financial developments around the year-end. That
evidence is now in.
The outlook for the world economy darkened dramatically since the last MPC
meeting, with recent US and EU statistics suggesting that demand fell off a
cliff around the New Year. The paralysis in the banking system has not been
resolved.
The time has come for much more aggressive policy action, following the
example of the measures announced in the US. While a move as dramatic as the
Fed's 125 basis point move would be premature, the MPC should signal the
seriousness of its commitment to avoid recession with half percentage point
move.
Sushil Wadhwani
Former external member of the Bank of England’s Monetary Policy Committee
CUT BY A HALF-POINT
I would vote to cut the Bank rate by 50 basis points.
a) As I have been expecting for some time, the US economy has continued to
weaken. Stock markets have fallen further, and remain vulnerable, with
cyclically adjusted price-earnings ratios still high. Though recent monetary
and fiscal stimulus will help, downside risks to growth have increased, with
recession a real possibility. Risks include further financial sector shocks,
including the as yet unresolved monoline insurer issue, and further weakness
in the housing market, whose impact on consumption is as yet unknown.
Furthermore, there are now clear signs of weakness spreading to the
Eurozone, which, of course, is the UK's largest export market.
b) In the UK we have again seen weak outturns in survey data on output and
consumption, and further evidence that the housing market has turned, with
falling prices and lower activity.
c) Oil prices have fallen over the month, and the sterling exchange rate has
been broadly stable. In any case, the pass-through of earlier cost pressures
is likely to be modest in the current economic climate. Also, a failure to
cut interest rates will cause the pound appreciate again.
d) Like the MPC, the Federal Reserve was initially slow to cut interest rates
during 2007. Consequently, the Fed is having to catch-up and accelerate its
rate cuts, correctly pointing out that it is best to attempt to pre-empt the
feedback effects that can occur when an economy starts to weaken
significantly. It is also very important for the MPC to be pre-emptive and
to take similar action.
