BOE May Follow With `Another Big One,' Allsopp Says

By Jennifer Ryan

Oct. 9 (Bloomberg) -- Former Bank of England policy maker Christopher Allsopp said the U.K. central bank may follow its half-point interest rate cut with another reduction if the financial crisis doesn't abate.

``It depends on the news, but if things are going on anything like they're going on now then yes, we'd see another big one,'' Allsopp, who voted on the bank's last emergency decision seven years ago, said in an interview yesterday. ``What central banks are always worried about is an upward spiral of prices and wages and there hasn't been a sign of that in Britain.''

The U.S. Federal Reserve and other central banks delivered a coordinated round of interest-rate reductions to protect economies from the worst financial market crisis since the Great Depression. Bank of England policy makers, led by Governor Mervyn King, have now canceled today's scheduled decision after lowering the U.K. rate to 4.5 percent and their next meeting is in November.

Central banks have ``got to be reasonably aggressive and deal with the crisis by taking sufficient steps to overcome the loss of confidence,'' Charles Goodhart, another former British policy maker, said on Bloomberg Television today. ``I fear the recession is going to deepen and there will have to be a number of further steps. A series of cuts in interest rates are on the cards.''

Goodhart was on the bank's Monetary Policy Committee from 1997 until 2000. DeAnne Julius, who was on the panel from 1997 until 2001, said in an interview yesterday that even after the Bank of England's rate cut, ``more will need to be done'' because ``the economy is weakening very rapidly.''

`Welcome Start'

Yesterday's reduction ``is a welcome start,'' said Matthew Sharratt, an economist at Bank of American Corp. in London. ``With the rate at 4.5 percent, it's still relatively restrictive. They're going to have to cut rates significantly further.''


The British central bank ``should have done more,'' Allsopp said. The move ``leaves the U.K. rate too high. I would have liked to do more'' at the meeting originally planned for today.

Allsopp was a member of the Bank of England's committee from 2000 to 2003, and never voted for a rate increase during that time. He was on the committee during its only other decision to cut interest rates between regularly scheduled meetings, after the Sept. 11 terrorist attacks.

`Jolt to the System'

The move yesterday was ``very dramatic,'' Allsopp said. ``Each central bank did what it thought, what it needed to do, in terms of giving a jolt to the system.''

The decisions ``signal that everyone's sort of woken up and stopped worrying about faster inflation and oil prices feeding through,'' he said. ``I'm quite worried about deflation.''

U.K. policy makers have scope to cut rates another half point while price pressures have eased and the financial turmoil worsens, Allsopp said. The bank had held the key rate at 5 percent since April as inflation quickened to 4.7 percent in August while commodity prices soared.

Allsopp said that the Bank of England's emergency reduction in 2001 after the terrorist attacks may also have involved discussions between central banks, though they were less unified in approach.

``It was coordinated because the event occurred and most central banks responded to it,'' he said. ``A few days after there was an unscheduled Monetary Policy Committee meeting, by which stage others had already cut.''

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net