Interest rate cut unlikely this week
by Kay Murchie
Concerns about inflation has meant that the Bank of England’s Monetary Policy Committee may leave interest rates on hold when it meets this Thursday.
Last month, interest rates were cut from 5.25% to 5%, which was widely expected by economists. However, two members, Tim Besley and Andrew Sentence, voted against the move because of the weakening pound and increased oil costs.
Consumer price inflation is above the Bank’s 2% target rate and still seems likely to reach at least 3% this summer as increased food and energy costs take their toll, together with the weaker pound.
Howard Archer, an economist at Global Insight, said signs that the UK economic downturn could be deepening and ongoing tight credit conditions puts pressure on the Bank of England to cut interest rates again sooner rather than later.
A quarter point cut to 4.75% is very likely on Thursday, said Mr Archer. However, we suspect that most MPC members would certainly prefer to delay acting until June given elevated inflation risks.
We expect rates will fall to 4% by the end of 2008 and to 3.75% in the first quarter of 2009, concluded Mr Archer.
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