Bank Rate will fall to 5% early in 2008
Posted on 19 December 2007 by
The minutes of the December Monetary Policy Committee (MPC) meeting were released today and show that the vote to cut Bank Rate by 0.25% this month was unanimous, which was a surprise, and this plus some other comments in the minutes suggest that another 0.25% cut as soon as January is a reasonable possibility - about a 50/50 bet at the moment I would say - and that a 0.25% cut in either January or February is almost certain, with a real possibility of there being a cut in both months, which would copy the Fed strategy of cutting its rate at their last 3 meetings. It is, however, too early to confidently predict a cut in both January and February but it certainly looks highly probable that we will get two more 0.25% cuts pretty quickly.
The following extract from the MPC minutes was particularly relevant in formulating my judgement that we can expect two more 0.25% cuts in Bank Rate early next year:
"The worsening financial market turmoil, and the consequent tightening of credit conditions, had increased the downside risks to activity and inflation in the medium term. Signs of slowing growth in the industrial world were already apparent. That suggested a substantial loosening in policy might be needed. The level of interest rates, following a marked tightening in policy last year, was already restrictive, and the expected slowdown in domestic demand should act to dampen inflationary pressures."
Categories: Bank of England, Interest rates
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