Rachel Lomax, the new deputy governor of the Bank of England, declared her intention to take an independent stand on the Monetary Policy Committee by voting alone not to cut interest rates two weeks ago, it emerged yesterday. Both the split and the wide range of views expressed came as a surprise to the City, which yesterday concluded another rate cut was now less likely.Ms Lomax told her colleagues the economic outlook for the UK was "benign" and the balance of risk lay in favour of making no change in rates. "A particular cause of concern was that the rate of growth of secured and unsecured borrowing by households was still unsustainably high and might be exacerbated by a [rate cut]," the minutes said, echoing Ms Lomax's testimony to the Treasury Select Committee.Research from Datamonitor published yesterday showed average debt in the UK has risen more than £1,000 a head over the past five years, a 50 per cent rise, as consumer borrowing soared to record highs.The minutes showed other MPC members felt the argument was finely balanced and only voted for a cut to take advantage of the benefits of a "precautionary" move. The minutes revealsome believed the economic news, especially on house and share prices and on borrowing, had turned positive.They also noted the potential impact of tax and rate cuts across the world.
"The current policy stance was strongly expansionary by historical standards," they said. Finally there were risks that both public and private sector pay would rise while the trade imbalance could worsen if rates were cut. "A further reduction would probably bring forward the time at which a rise in rates would be necessary," the minutes said.However, these arguments were outgunned by the case for a rate cut. The majority view was that the economic climate, especially for the UK's trade partners, has deteriorated since May, while pay pressure and inflation have both eased. Additionally, the fall in sterling that had prevented a June rate cut has now reversed, and there was less evidence that a rate cut would stimulate a housing market which was slowing of its own accord. Finally the minutes said: "There was no real advantage to delaying the rate reduction for a further month."In the City, economists said the size of the majority did not make another imminent cut inevitable, especially as the pound has fallen 2 per cent against both the dollar and the euro since the decision to cut rates.
Adam Cole, an economist at Cr?t Agricole, said: "Looking forward the MPC does not seem to have its finger on the trigger for another move." Some economists said there was a clear hint the majority had decided to cut rates now rather than in August, reducing the chance of another cut next month.. Shares in Egg, Prudential's internet bank offshoot, jumped 9p to 133.5p yesterday despite news of a £22.8m half-year loss and continuing problems at its fledgling French operation. Egg's chief executive, Paul Gratton, said: "Sales volumes have been slower than expected and we continue to monitor progress closely, but we still think there is a viable business in France."He refused to say whether the monitoring process might involve the sale of Prudential's 79 per cent stake in Egg, for which Royal Bank of Scotland has been a rumoured buyer. Egg shares were floated on the stock market at 160p in June 2000.Mr Gratton suggested that Egg shares had risen because yesterday's statement had shown the stock market that "our UK business is doing very well indeed and we are controlling costs in France."When Egg went into France last October it said that it was aiming at a million customers by end-2004, a target it has had to abandon It still has only 115,000 customers, sharing 42,000 cards. Mr Gratton added: "Encouragingly, behavioural data shows these customers continue to have a high usage rate, indicating that 'la Carte Egg' is their primary card and, importantly, the percentage of balances revolving has risen from 41 per cent during the first three months of the year to 70 per cent in June."Card balances are now €68m (£48m), up from €34m at the end of the first quarter."However, Egg's UK business is growing strongly, attracting another 340,000 customers in the first half-year, making a total of 2.9 million and helping towards a profit before tax of £36.7m.
