When will we get the next Bank Rate cut?
Posted on 4 September 2008 by
With the Bank of England deciding to leave Bank Rate unchanged @ 5% today the focus will increasingly be on how long we will have to wait for the next cut. After The Chancellor’s frank comments at the weekend that Britain is facing "arguably the worst" economic downturn in 60 years which will be "more profound and long-lasting" than people had expected, I anticipate that the MPC will have seriously discussed whether Bank Rate should be cut as early as today. However the current elevated level of the CPI, with further increases to come to around 5%, will have been an obvious obstacle.
The minutes of today’s meeting, published on 17 September, will tell us whether David Blanchflower was still a lone voice in voting for a cut and whether Tim Besley has at last recognised that an increase would be inappropriate as the economy rapidly deteriorates. Mr Blanchflower had previously indicated that he would vote for a 0.5% cut and I suspect there was a three way spilt for the third month running, but this time with the votes being for no change, a 0.25% cut and a 0.5% cut.
The recent sharp fall in the oil price provides a major fillip to the argument for the next rate cut to be soon, despite its 25% fall in $ terms translating to a smaller but still substantial 18% in sterling. The Consumer Price Index (CPI) will probably increase for another couple of months before peaking around 5% and this will coincide with publication of the November Quarterly Inflation Report, which is likely to be more dovish on the inflation outlook over the next 2 years and hence pave the way for a rate cut in November.
Categories: Bank of England, Interest rates
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