Bank of England hints at April interest rate cut

The Bank of England Governor, Mervyn King, said the current credit crisis has ‘moved to a new and difficult phase’ and hinted at an April interest rate cut. However, Mr King warned that interest rates will not be cut as aggressively as in the US.

In the US, the Federal Reserve has cut rates from 5.25% to just 2.25% in recent months, including a cut of 75 basis points just last week.

When asked by MPs on the Treasury Select Committee if the tighter lending conditions mean interest rate cuts are more likely, Mr King answered ‘yes‘.

Economists believe Mr King’s comments indicate that he could vote for a rate cut as early as next month. Since December, the Bank of England has reduced rates from 5.75% to 5.25% .

Howard Archer, of Global Insight, said we now expect the Bank of England to trim interest rates by a further 25 basis points to 5% in April rather than in May as we had previously forecast.

Mr King said that inflation is still a major concern, having hit 2.5% in February and now moving towards 3%, well above the 2% target. He added that the Bank faced ‘a difficult balancing act’ between rising inflation and slowing economic growth.

We are not going to lose control of inflation in this country, said Mr King and said the problems in the banking system are coming to an end.

Mr King said the Bank is now looking at ‘longer-term’ solutions to the credit crisis. The co-ordinated measures the central banks took in March did not work. There has been a much greater sense in the last few weeks of this lack of confidence and fragility and that is a matter we are trying to deal with, concluded Mr King.

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