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Possible tactical considerations

24 The clear majority expectation in the financial markets was for a 25 basis point cut in the Bank's repo rate, with a small probability ascribed to a 50 basis point cut. 25 The Committee noted that the timing of the general election was irrelevant to its decisions, which would as usual be made on the basis of what was judged necessary to achieve the 2½% target for RPIX inflation over the medium term.

The immediate policy decision

26 For most members, the most likely outlook for output growth and inflation was as published in the Inflation Report fan charts. There was uncertainty about how best to interpret the recent weak UK output numbers given the apparent robustness of final domestic demand and the various temporary factors affecting activity in Q4 and Q1. Output growth was, nevertheless, likely to be at or below trend for a while given the slowdown in the world economy. Business confidence had most probably fallen but the scale of that fall was as yet unclear. Slowing consumption growth and an increasing negative contribution to GDP growth from net trade were expected more than to offset the effects of rising public spending. The labour market was still quite tight but was no longer obviously tightening, and underlying pay pressures appeared stable. Price and cost pressures remained subdued. For these members, the news on the month was on balance in the direction of weaker growth and so warranted a further small cut in the Bank's repo rate. For some of these members, not much, if any, downside news had been needed since the Committee's April meeting to justify a further easing. Various arguments were identified for not cutting by more than 25 basis points, to which members gave various weights. First, recent data on retail sales, car registrations, the housing market, and household money and credit growth pointed to consumption growth remaining fairly strong, albeit slowing. Clearer evidence of its slowing would be needed to justify a larger cut in interest rates. Second, a cut of 50 basis points would run a material risk of being misinterpreted as implying that the Committee thought the prospect was bleaker than was in fact the case, and so could perversely damage confidence. Third, since there had been relatively little domestic news on the month and the implications for the United Kingdom of the international news were not clear, the better course was to move in small steps, cutting again if either domestic or international news were to justify that in due course. Fourth, while a large cut would be