Banking and Financial News

Rate cut 'likely to be 25 basis points' - 01/02/2008

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The UK's leading economists are predicting a base rate cut of 0.25 per cent, according to a new poll of major financial institutions.

Of the seven experts surveyed by smartermoney, all forecast that the Bank of England will lower the cost of borrowing by 25 basis points in its February meeting, set to take place next week.

Economists including Capital Economics' Jonathan Loynes and Barclays Capital's Simon Hayes all asserted that a quarter point cut by the monetary policy committee (MPC) would be the most likely outcome of the organisation's February meeting.

Kenneth Broux, economist for Lloyds TSB, noted that conditions have remained "a little bit restrictive" at 5.5 per cent and acknowledged "room for lower interest rates.

After implementing a 25 per cent cut in December 2007, the Bank voted to maintain the base rate at its current level last month.

Ross Walker, economist at the Royal Bank of Scotland, expects that if these expectations do materialise, focus will turn to this month's Inflation Report.

"The combination of sharply lower rates and a seven per cent decline in the sterling ERI is likely to result in an overshoot in the consumer price index central projection at the two-year horizon. Events may subsequently force the MPC into more aggressive easing, but a projected overshoot should dampen market expectations," he states.

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