Are There More Interest Rate Cuts On The Horizon?
The results of a poll carried out this week by Reuters showed the likelihood of at least 2 more interest rate cuts by the end of this year.
Forecasts made by the 54 economists who took part in the poll predicted that the official Bank Rate would fall to 5% no later than June, with a further drop to 4.75% estimated to take place around September. The poll was taken after the Bank issued its quarterly report following the second quarter point cut this month to 5.5%.
In its Inflation report this Wednesday, the Bank of England emphasised that rates would not fall as sharply as the financial markets are predicting, 4.5% by the end of the year. It said that inflation was expected to be around 3% by mid-year and GDP growth (gross domestic product) would fall below 2% by the end of the year.
The BoE Governor Mervyn King stated, "We are determined to bring inflation back on target." He also stressed the Bank's intention to keep prices in check.
Consumer price inflation is targeted at 2.0% and the Bank of England's Monetary Policy Committee is faced with the difficult task of keeping inflation under control whilst juggling a flagging economy with the pressures of rising prices.
Despite a slight growth in the UK economy over the last few months of 2007, the cost of fuel and food has continued on an upward curve. Oil prices are now almost $100 a barrel and several domestic energy suppliers such as Centrica and EDF have already announced their imminent double-figure price increases.
A report this week from RICS (Royal Institution of Chartered Surveyors) also showed a slowdown in the property market with house prices falling in the last 3 months at a faster rate than in the past decade.
However, amidst the negative after effects of the credit crunch the labour market is looking positive. Although the average income did not rise as much as expected, the number of people claiming unemployment benefit fell considerably lower in January. Unemployment dropped by some 61,000 taking official UK unemployment figures to 1.61 million.
Published on February 15, 2008
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