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Hint that interest rates may drop



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Published Date: 21 August 2008
By Scott Reid
INTEREST rates could fall as early as November, analysts last night predicted, as the Bank of England continues to juggle with a slowing economy and rising inflation.
Minutes from the central bank's August meeting, published yesterday, confirmed that policymakers were split three ways for a second month running.

Arch "hawk" Tim Besley repeated his call for a quarter-point hike in borrowing costs, but "dove" Dav
id Blanchflower, below, again voted for a cut. The remaining seven members of the bank's rate-setting committee decided to keep borrowing costs steady at 5 per cent.

The minutes reinforce expectations that the next move in interest rates will be down.

However, they may also disappoint some investors who had been hoping that more policymakers would have joined Blanchflower in voting for a reduction.

Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said another three-way split showed "just how fine a line the Bank of England is having to tread".

She added: "The majority of MPC members thought the current weakness in the economy and the resulting spare capacity was enough to bear down on inflation without the need for an increase in the interest rate.

"Item (Club] still believes that interest rates will stay on hold during the summer months, but the possibility of a cut in November seems increasingly likely."

Ben Read, senior economist at the Centre for Economics and Business Research (CEBR), added: "Our central view remains that we will see the first rate cut in early 2009, with an outside chance of a cut before Christmas if it becomes clear that inflation is starting to turn the corner."

The majority of members of the MPC said the main risk of an immediate rate cut was that it could suggest the committee was more concerned about sustaining output growth than about returning inflation to its 2 per cent target.

Inflation hit 4.4 per cent last month and is expected to reach 5 per cent before the year end.

Bank of England governor Mervyn King warned last week that the UK economy faced at least one quarter of contraction.





The full article contains 358 words and appears in The Scotsman newspaper.
Page 1 of 1

  • Last Updated: 20 August 2008 9:00 PM
  • Source: The Scotsman
  • Location: Edinburgh
 
1

Joseph Gibson,

Ayrshire 21/08/2008 03:54:01
As a result people's wages will slow to a halt aswell as jobs, and our government insist that our people are being paid fairly, and are managing to cope with the rise of food, electric/gas, petrol bills etc.
Which reminds me that here at home (UK) we have activists who complain that the Chinese (for example) are being paid Sh*t, but the reason why people in various countries don't get paid as much as people in the UK is because they don't need as much to be able to live their life's (Well, i'd say survive, as thats the incase here in the UK).
2

JRA,

21/08/2008 11:55:02
Your comments are assininie and show little if any understanding of inflation and the effects of a wage price spiral in destroying an economy.

Public sector workers are being asked to accept a pay increase of 2.5%. If inflation stays at 4-5% then it will be an effective pay cut (Better than losing your job though. That is what will happen if the country enters into wage driven inflation, downing the economy and taking public spending with it).

But inflation will not stay at this level. The economy is slowing and inflation will fall as people restrict their spending and lose jobs. This is the central projection from the BOE and most analysts.

I am sick to death of cossetted public sector workers and their ignorant self obsessed union leaders compalining about being marginally worse off. We are heading into a recession, everybody has to tighten their belts and accept lower pay deals for a time.

The reality for those working in the private sector is that they can accept a tighter pay deal at the annual review, or lose their job.

How dare you ask me to finance your silly, irresponsible pay claims through my tax.

 

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