What the experts are saying about future rate cuts

As widely predicted the Bank of England decided to cut interest rates again this month for the second time since December, whilst trying to balance concerns over rising inflation and worries over a slowing economy. The base rate now stands at 5.25%, and many experts are predicting further rate cuts over the course of the year. Some opinions from industry experts have been extracted from a recent report.

Howard Archer from Global Insight stated: 'The Bank is likely to continue to cut interest rates gradually as it carries out a difficult balancing act of trying to support growth while containing underlying inflation pressures. We currently forecast interest rates to fall to 4.5% by the end of 2008 and to 4% in the first half of 2009. This is based on our assumption that the UK will avoid recession, but will see extended below-trend growth. Specifically, we forecast GDP growth to be limited to 1.8% in both 2008 and 2009, which would be the equal weakest performance since 1992. However, with the downside risks to the UK economy mounting, there is clearly a very real possibility that interest rates will fall faster than this.'

An economist from Charles Stanley Stockbrokers said: 'Many will find the current reductions in interest rates as questionable given the pressure from inflation. Inevitably the choice is between two evils: no cuts and a possible recession; cuts and possible inflation.'

Many analysts and economists are saying that there is a 50% chance that rates could be cut again in March, but many believe that the next rate cut is more likely to take place after the April Monetary Policy Committee meeting.

Tom Smith
21st February 2008

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