The conclusion of the Committee was as follows:
The Committee agreed that, given the significant probability of undershooting the inflation target in the medium term, a cut of at least 100 basis points was needed. The Committee discussed whether a larger cut was warranted. That might be justified by the scale of the downside risks to inflation. A number of arguments were, however, advanced against a larger cut, to which different members attached different weights.
Financial markets had priced in a cut of 100 basis points and there was a risk that going further could cause an excessive fall in the exchange rate. There was also a risk that an unexpectedly large cut could undermine confidence in the economy more widely. A cut of 100 basis points would mean that the level of Bank Rate would have been reduced from 5% to 2% in just 8 weeks; given the uncertainty inherent in the transmission mechanism, it was difficult to be certain that rates needed to be cut by more or faster than that.
In addition, substantial measures had already been taken to support the financial system and to boost demand through fiscal policy. Though these measures would take time to have an impact, they would provide support to demand in 2009, alongside monetary policy.
