Further interest rate cuts expected
This month’s interest rate cut from 4.5% to 3% was a unanimous vote from the nine-member Monetary Policy Committee (MPC), according to the minutes of the meeting, released earlier today.
The 1.5 percentage point cut was the largest reduction since 1981, and took rates to the lowest level since 1955.
The Bank of England is hinting at a cut to 2.5%, or even lower, in order to stop inflation falling below its target next year.
Figures released yesterday from the Office for National Statistics (ONS) showed that UK inflation fell from its 16-year high of 5.2% in September down to 4.5%, as energy costs and oil prices have fallen.
The ONS said the drop in inflation is the biggest month-on-month fall since 1992.
Inflation has been spiralling above the Bank of England’s target of 2% but could now fall as low as 1%. Earlier this week, Prime Minister Gordon Brown told the House of Commons that next year the problem is deflation and the problem of inflation close to zero.
The minutes also revealed that a cut of 2% was on the cards but the MPC said such an aggressive cut would have come as too much of a shock.
The Bank of England last week said the British economy is falling into a deeper recession than originally forecast and said inflation could fall to 1%, below the Bank’s target of 2%.
Following the release of the minutes, sterling fell to $1.4964 from $1.4987, while it also weakened against the euro to 84.18p.
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