Will The Bank Of England Cut The Base Rate In February?
The next meeting of the Monetary Policy Committee, where discussions will take place as to whether or not a further cut in the base rate is on the cards, is still set for February 6-7th. Despite the Federal Reserve's announcement on January 22nd of an emergency 75 basis point rate cut, there have been no plans to bring the MPC meeting forward.
The Bank of England's current base rate stands at 5.5%, following a quarter point cut last December, and is expected to drop to 5.25% in just under a week's time.
Chief economic adviser to the Confederation of British Industry (CBI), Ian McCafferty, said that a base rate of 5.25% would perhaps still be on the restrictive side of neutral, adding that the neutral level of interest rates would be at the 5% or high 4% mark. McCafferty believes that many financial markets and analysts are predicting too much of a cut by the BoE, with their figures indicating towards a rate of 4% or lower by the end of the year 2008.
While the CBI has said that the Bank of England should "look beyond short-term inflationary dangers and concentrate on the threat of a looming consumer slowdown", the overall opinion on interest rate cuts, shared by both analysts and business people alike, is that they will continue to be restrictive.
Many share the opinion that we are now experiencing the long-awaited slowdown in the rate of consumer spending growth. Predictions of a severe decline in consumer spending over the Christmas period were, however, not so badly manifested. This in turn has lead to a shift in the general outlook of slowing house prices on consumer spending, which it is now thought will have less of an impact.
Published on February 4, 2008
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