Cut in interest rates is unlikely
The Bank of England’s Monetary Policy Committee is due to meet on Thursday but homeowners hoping for a cut in interest rates are likely to be disappointed.
In spite of the recent turbulence in the credit markets, the majority of economists anticipate that interest rates will be held at 5.75% for the fourth consecutive month.
Minutes of the committee’s October meeting said a cut in interest rates was considered but it did not seem that conditions in financial markets had so far had a considerable impact on consumer or business confidence.
Consumer Prices Index inflation currently stands at 1.8%, below the Monetary Policy Committee’s 2% target, but committee members are concerned over only limited signs of a slowing economy. Furthermore, oil has reached a record $96 a barrel which added to inflation risks.
Nationwide announced a surprise 1.1% increase in property prices last month and there have been indications of weakening activity and business confidence among manufacturers.
Furthermore, retail sales in September were up which implied that consumer confidence had not been affected as many had thought.
A chief economist at Investec said the latest figures have been stronger than anticipated, suggesting that if the economy is slowing down, it is doing so from a position of some strength. The economist added that they believe that the solid momentum of the economy will probably persuade the MPC to keep rates at 5.75%.
Howard Archer of Global Insight said an early interest rate cut risks fuelling inflation if growth proves to be resilient over the next few months and we lean towards the view that the Bank of England will remain in ‘wait and see’ mode on Thursday.
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