Breaking finance and business news, tax information, jobs and more for finance directors and senior finance professionals.

City analysts said that the decision had been on a knife's edge, with business leaders calling for a further cut following last month's unanimous decision of a quarter percentage point cut in the Bank's base rate. 

It is widely believed that the Committee will take further rate cuts, with some sources predicting a cut of as much as half a percentage point next month.

It is thought the MPC wanted more time to study the effects of last month's cut, following mixed signals from high street shops, the housing market and other economic indicators.

Missed opportunity 

The manufacturers' organisation EEF said that the Bank of England had missed an opportunity to stamp its authority on the economy at the start of the year, amidst growing evidence of a more significant slowdown than expected in 2008.

EEF added that it believed that the growing chance of a recession in the United States, the knock on effects of the credit crunch on business and consumer confidence and a possible slump in the housing market outweighed reasons for delay.

EEF chief economist Steve Radley, said, "The evidence from the past month points to a growing risk of a weaker economy and there is little reason to believe the case for a cut will be any less strong next month. The Bank has missed an ideal opportunity to head off the pervading economic gloom which has enveloped the UK at the start of the year."

Conflicting data 

The CBI's chief economic adviser Ian McCafferty said that the MPC had been presented with a plethora of potentially conflicting data over recent weeks, which fuelled uncertainty about which way it would vote today. He added that, while it is clear that a further cut was already in the pipeline, the exact timing has been harder to call.

"The economic news over Christmas was mixed, and the severity of the slowdown difficult to determine. At the same time, inflationary pressures from energy and food costs remain worrying," McCafferty said.

He believed that what probably tipped the balance in the decision was the much greater calm in the money markets, following the injection of liquidity by the key central banks in the run up to the critical year end period. McCafferty pointed out that three-month LIBOR spreads have fallen to their lowest since last August.

"While it is still much too early to declare that markets are returning to normality, this has allowed the Bank to take its time in assessing where the economy is going for next month's meeting," he concluded.

Toothpaste 

Stockbrokers Charles Stanley’s chief economist Edward Menashy said that the Monetary Policy Committee (MPC) was not in a position to take any risks with inflation, with mounting pressure from rising wages, higher energy and food prices, and a rapid decline in the interbank market (three month rate down to 5.64 per cent).

"Inflation is like toothpaste: once it has escaped from the tube it is very difficult to put back in. Hence the MPC is treading carefully. By the end of 2008 markets could nevertheless be anticipating a further 75 basis point reduction in rates lowering base rates to 4.75 per cent," Menashy added.

Related articles

• Consumer confidence remains subdued
• Business optimism at five-year low
• Businesses warned of self-fulfilling prophecy of recession
• Corporate shift away from debt-driven strategies
• Sharp fall in financial services activity
• Service sector decline signals deepening problems
• Negative retail statements at two-year high
• Consumers steer clear of major purchases

Related links

• Bank of England
• EEF
• CBI
• Charles Stanley