Banking and Financial News

Global Insight predicts 'gradual' rate cut - 01/02/2008

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Consumers can expect interest rates to be reduced "gradually but steadily", according to one industry commentator at Global Insight.

Chief European and UK economist for the firm, Howard Archer, predicted the Bank of England's monetary policy committee (MPC) would reduce interest rates next week, but not by more than 25 basis points.

His forecast comes as some analysts anticipate the current interest rate will be slashed to five per cent, a reduction of 50 basis points.

Mr Archer is one of seven industry analysts who participated in a straw poll by smartermoney to predict the move of the base rate.

All of those polled said they anticipate a 0.25 per cent cut in interest rates next week.

"The Bank of England is likely to cut interest rates gradually but steadily as it carries out a difficult balancing act of trying to support growth while containing underlying inflation pressures," Mr Archer commented.

According to Global Insight, the only factors that could prompt a 0.5 per cent base rate reduction are "a further very sharp fall in equity prices" next week and "last-minute data" indicating a sharp deterioration in the UK's growth outlook.

Meanwhile, Lloyds TSB economist Kenneth Broux - who also voted for a 0.25 per cent cut in smartermoney's poll - said conditions have been "a little bit restrictive" with rates at 5.5 per cent.

"There's room for lower interest rates," he commented.

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