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London: British interest rates are likely to come down next month to safeguard the economy but aggressive cuts of the kind announced by the US Federal Reserve are not on the cards, the Bank of England signalled.
Minutes of the Bank's January 9-10 meeting showed the risks to growth and inflation had both risen, creating a policy dilemma also highlighted by Governor Mervyn King on Tuesday.
Speaking to a business audience in Bristol, King said Britain's economy faced its most challenging year in a decade. He paved the way for a February rate cut but suggested rapid-fire interest rate cuts were not the answer to financial market woes.
"The re-pricing of risk that is still continuing is not a process that we should try to reverse," he said.
Coming hours after the Federal Reserve cut US interest rates by 75 basis points, its biggest cut in a quarter of a century, King's comments were seen as an implicit rebuke of the Fed's actions.
"The deep cuts in rates that the Federal Reserve seems to favour are not for the Bank of England," said Stephen Lewis at Monument Securities.
The minutes showed only arch-dove David Blanchflower opposed this month's decision to keep rates at 5.5 per cent. Many in the market had expected the decision to be a closer call.
Sterling strengthened and stocks fell after the minutes' release at the same time as figures showing the economy grew slightly faster than expected in the final quarter of last year.
Preliminary data showed Britain's economy grew 0.6 per cent in the three-month period, easing from 0.7 per cent in the third quarter but still recording the strongest full-year performance since 2004.
Deceleration
Evidence the economy is not decelerating as swiftly as expected in the wake of the credit crisis suggests Britain's central bank may not need to cut borrowing costs as much as expected this year.
On an annual basis, the economy grew 2.9 per cent in the fourth quarter, down from 3.3 per cent in the three months to September. This was the lowest since the second quarter of 2006 but was higher than most analysts had forecast.
A poll of 58 economists taken after the data showed the unanimous expectation the Bank would cut rates in February.
Most predicted rates would stand at 4.75 per cent by the end of the year.
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