| UK
Interest Rate: 5.25%
UK
Interest Rates Forecast: Further moderate cuts possible
- large cuts unlikely
Reuters
Poll: Economists Expect Further Cuts
A
poll by Reuters of 54 economists found that 53/54 expect
the Bank of England to cut interest rates
to no more than 5% by June. The median forecast was for
a further cut to 4.75% by September, after which rates
might remain unchanged until March next year.
The
financial markets have been expecting
rates to fall to 4.5% by the end of 2008, but recent comments
from Mervyn King, Governor of the Bank of England, suggest
that smaller cuts are more likely as the MPC continue
to focus on controlling inflation.
Interest
Rates: An Underlying Plan?
Although
inflation is being touted as the main reason for keeping
interest rates (relatively) high - higher than
the US or Europe, anyway, there may be a second reason,
according to some analysts.
Felix
Salmon, writing in the Market Movers blog this week, explained
why he thinks inflation itself isn't the only reason our
interest rates aren't coming down faster:
"Rather,
I suspect that the Bank of England is quietly not at all
unhappy that the housing-and-finance boom seems finally
to have come to an end. It was always unsustainable, and
while there's no pleasant way for any bubble to burst,
a slow deflation, like we're seeing in the UK, is always
preferable to a nasty crash."
Salmon
also observed that if the worst does happen and panic
sets in, the Bank of England has much more scope for an
emergency cut in rates than either the European Central
Bank or the US Federal Reserve.
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