UK Interest Rate: 4.5 %

UK Interest Rates Forecast: Rate cut increasingly likely in November or December

Bank Rate Remains Unchanged in September

The Bank of England Monetary Policy Committee left the base rate unchanged at 5.0% in September, in a decision widely-expected by the markets.

In the minutes from September's meeting, the MPC noted that a case could be made for both and cut and an increase to interest rates. Falling domestic demand meant that there was a risk of inflation falling too rapidly and undershooting its 2% target. This could be ameliorated by reducing interest rates now.

Conversely, increasing rates now would help restrain continuing inflationary pressures, especially in the light of the additional impact of the weakened pound. The conclusion of the majority of members was that the best way of balancing these two risks was to leave the interest rate unchanged at 5.00% in September. The final vote was of 8-1 in favour of no change.

Rate Cut Expected Before End 2008

The likelihood of an interest rate cut before the end of 2008 is growing, according to city opinion. Several MPC members have indicated in recent public statements that their position on interest rate cuts is softening.

The most recent member to indicate that her position might be changing is Kate Barker, who commented that "recent developments in the financial markets have increased the downside risks [to the economy]" and that there was now a danger that there could be a more severe downturn that could in turn result in "a large undershoot of the inflation target".

Several other MPC members have made comments to similar effect in the last month and analysts are increasingly pencilling in a cut; Howard Archer, of Global Insight, told The Times that "we are becoming more confident that the Bank will cut rates to 4.75% in November."