| Current
UK Interest Rate: 5.75%
UK
Interest Rates Forecast: Rate cuts likely early in 2008
Inflation
Breaches 2% Marker Again
The
government's preferred CPI measure of inflation has unexpectedly
risen over 2% again, following two months during which
it remained below this target level.
The
Bank of England's Quarterly Inflation Report showed that
in October inflation reached 2.1% - mostly as a result
of higher fuel and food prices.
This
latest surge in inflation will discourage the Bank of
England's Monetary Policy Committee from making any premature
moves to cut interest rates - despite the urging of retailers
and those in the property business who are seeing falling
sales as a result of credit pressures and higher interest
rates.
Bank
of England Signals 2008 Rate Cut Likely
The
Governor of the Bank of England, Mervyn King, has signalled
that the Bank's base interest rate is likely to be cut
early in 2008.
In
comments accompanying the publication of the Bank's Quarterly
Inflation Report, he said that "The near-term outlook
is less benign for both inflation and growth". Most
economic analysts have understood this to mean that the
Bank recognises the need for interest rate cuts next year
to allow both inflation and growth to have a soft landing.
Despite
this, many people believe that true inflation is somewhat
higher than official figures might suggest. A prime example
of this is so-called 'factory gate prices' - the prices
charged by manufacturers for their goods.
October
saw factory gate prices rise by an average of 3.8% - the
highest for 12 years and substantially above the official
measure of inflation. It is factors such as this which
are causing the MPC to delay rate cuts - inflation is
not yet fully under control.
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