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Blanchflower is the sole voice at bank calling for a rate cut

Eight of the nine members of the Bank of England’s monetary policy committee voted in favour of maintaining bank base rate at 5 per cent this month.

The minutes of May’s meeting reveal that only David Blanchflower voted against the proposition, preferring a reduction of 25 basis points.

Most members felt that a reduction in base rate this month would make it more difficult to keep inflation expectations in line with the targets set by the Chancellor.

CPI inflation is already at 3 per cent and the committee expects it to rise further in the near term.

The minutes show that although economic activity is likely to slow, the committee judged that some slowing in the growth rate of output was likely to be necessary for inflation to settle close to the target in around two years time.

The MPC said: “A further reduction in bank rate this month could create the impression that the committee was trying to stabilise output growth rather than maintaining its focus on the inflation target.”

Blanchflower argued that it was important to look through the short-term spike in inflation. He pointed out that the factors pushing up inflation – oil and commodity prices – were beyond the control of the MPC and, with pay growth remaining subdued, he believes that this period of above-target inflation would have little tendency to persist.

He felt that the current and prospective weakness of demand meant that there was a clear risk of missing the target on the downside in looking further ahead.

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