BoE considered even bigger rate cut

By Matt Falloon and Fiona Shaikh

LONDON (Reuters) - The Bank of England considered slashing interest rates by more than 200 basis points this month before settling for a smaller but still spectacular cut, raising expectations of further big cuts to stave off a deep recession.

The Monetary Policy Committee voted unanimously for the 150 basis point cut to 3.0 percent given the downside risks to inflation and a deteriorating outlook for the economy, minutes of its November 5-6 meeting showed on Wednesday.

This was already the biggest official rate cut since 1981, but the bank's economic forecasts published later in its Inflation Report could have justified an even larger move.

"The projections in the Inflation Report implied that a very significant reduction in Bank Rate -- possibly in excess of 200 basis points -- might be required in order to meet the inflation target in the medium term," the minutes said.

However, policymakers did not want to spook markets too much and were wary of the upside risks to inflation from too sharp a fall in sterling that may have followed a larger cut.

They also wanted the opportunity to explain their marked shift in position in November's Inflation Report and to see what economy-boosting measures the government would announce in its pre-budget report on November 24 before deciding how to proceed.

"With inflation falling much more than expected in October already to 4.5 percent and amid growing gloom about the global economic outlook, we continue to believe that the MPC will need to effect another deep cut next month," said Matthew Sharratt, an economist at Bank of America.

"We are looking for a 100 basis point cut to 2 percent already, notwithstanding the MPC's desire to keep back some of its firepower to support confidence in coming months."  Continued...