The Bank of England’s decision to lower its base interest rate to 4.25% was met with praise from the Institute of Economic Affairs (IEA), particularly for the variety of views reflected in the Monetary Policy Committee’s (MPC) vote.
In a statement responding to Thursday’s announcement, Julian Jessop, economics fellow at the free-market think tank, called the move “fully justified” given the current economic challenges.
However, he noted that the MPC’s internal division— – members voting for a deeper cut to 4%, two preferring to hold rates steady, and the majority opting for a quarter-point reduction – was unusual.
He said: “The three-way split on the MPC sends mixed signals about the future path of interest rates and may disappoint those looking for more clarity.”
Jessop also pointed to ongoing issues with “the variable quality of the official statistics, notably on the state of the labour market,” as a contributing factor.
Despite this lack of consensus, Jessop framed the division as a positive sign in a climate of economic uncertainty.
He said: “The diversity of views is a fair reflection of the heightened economic uncertainty, both at home and abroad.
“If anything, the lack of groupthink is something to cheer. It would be more worrying if nine rate-setters all came to exactly the same conclusion despite the many unknowns, including the fallout from a global trade war.”
Jessop also welcomed the Bank’s increased attention to money supply data, praising a new section in the Monetary Policy Report devoted to developments in broad money.
He said the inclusion of this analysis, which acknowledged possible downside risks to growth and inflation, suggested a more balanced and informed approach to monetary policy.
He added: “Many commentators, including members of the Shadow MPC which meets at the IEA, have been arguing for some time that the Bank has not been paying enough attention to monetary aggregates.
“This is another welcome sign that the real MPC is now taking account of a wider range of perspectives.”
