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| Version 3 | Version 4 |
|---|---|
| Economists forecast cut in rates | Economists forecast cut in rates |
| (about 1 hour later) | |
| The Bank of England is expected to cut UK interest rates by a quarter of a percentage point to 5.25% from 5.5%. | The Bank of England is expected to cut UK interest rates by a quarter of a percentage point to 5.25% from 5.5%. |
| However, analysts said that while they expect borrowing costs to fall, concerns about inflation would prohibit large cuts of the size seen in the US. | However, analysts said that while they expect borrowing costs to fall, concerns about inflation would prohibit large cuts of the size seen in the US. |
| The Bank of England's Monetary Policy Committee (MPC) will announce its rate decision at 1200 GMT after a two-day meeting. | The Bank of England's Monetary Policy Committee (MPC) will announce its rate decision at 1200 GMT after a two-day meeting. |
| Many observers are predicting that rates will fall further this year. | Many observers are predicting that rates will fall further this year. |
| However, a lot will now depend on how the UK economy performs, analysts said. | However, a lot will now depend on how the UK economy performs, analysts said. |
| "Latest data and survey evidence indicate overall that while UK growth is currently clearly slowing appreciably, it is not collapsing," said Howard Archer, chief UK economist at Global Insight. | "Latest data and survey evidence indicate overall that while UK growth is currently clearly slowing appreciably, it is not collapsing," said Howard Archer, chief UK economist at Global Insight. |
| "Consequently, the Bank of England seems unlikely to follow the US Federal Reserve in slashing interest rates. | "Consequently, the Bank of England seems unlikely to follow the US Federal Reserve in slashing interest rates. |
| "Instead, the Bank of England is likely to cut interest rates gradually but steadily." | "Instead, the Bank of England is likely to cut interest rates gradually but steadily." |
| Balancing act | Balancing act |
| Analysts said that the Bank has to juggle the threat of slowing economic growth with the risk of faster price growth. | Analysts said that the Bank has to juggle the threat of slowing economic growth with the risk of faster price growth. |
| The MPC voted 8-1 to keep interest rates on hold in January, and said the risk of inflation had "worsened markedly". | The MPC voted 8-1 to keep interest rates on hold in January, and said the risk of inflation had "worsened markedly". |
| Thursday's rate decision comes after the British Retail Consortium said shop price inflation picked up in January to 1.2%. Food prices showed the biggest increase, up 3.9% compared to the previous year. | Thursday's rate decision comes after the British Retail Consortium said shop price inflation picked up in January to 1.2%. Food prices showed the biggest increase, up 3.9% compared to the previous year. |
| And while the most recent UK inflation data showed that national consumer price inflation remained at 2.1% for the third month in a row during December, energy prices have increased substantially since then. | And while the most recent UK inflation data showed that national consumer price inflation remained at 2.1% for the third month in a row during December, energy prices have increased substantially since then. |
| British Gas, Npower, EDF and Scottish Power have all announced double digit increases in fuel prices this year. | British Gas, Npower, EDF and Scottish Power have all announced double digit increases in fuel prices this year. |
| Policy makers will also be keeping on eye on the pound. | Policy makers will also be keeping on eye on the pound. |
| It has fallen 7% against the dollar since November and was down again on Wednesday. A strong currency helps keep inflation low by making imports relatively cheaper. | It has fallen 7% against the dollar since November and was down again on Wednesday. A strong currency helps keep inflation low by making imports relatively cheaper. |
| 'Rapid steps' | 'Rapid steps' |
| UK business is looking for a more aggressive attitude to interest rates. | UK business is looking for a more aggressive attitude to interest rates. |
| Economic adviser to the British Chambers of Commerce, David Kern said: "We would welcome a cut to 5% but we understand the MPC may be reluctant to give a misleading impression of panic. | Economic adviser to the British Chambers of Commerce, David Kern said: "We would welcome a cut to 5% but we understand the MPC may be reluctant to give a misleading impression of panic. |
| "We urge the MPC to move to a 5% rate in two rapid steps. | "We urge the MPC to move to a 5% rate in two rapid steps. |
| The longer it waits, the bigger the danger that the situation could deteriorate." | The longer it waits, the bigger the danger that the situation could deteriorate." |
| The Confederation of British Industry's chief economic adviser, Ian McCafferty, argued that despite short-term inflationary pressures, "there are clear signs that the economy is beginning to slow". | The Confederation of British Industry's chief economic adviser, Ian McCafferty, argued that despite short-term inflationary pressures, "there are clear signs that the economy is beginning to slow". |
| "A modest cut now would help ensure a soft economic landing, without undermining the Bank's credibility on inflation." | "A modest cut now would help ensure a soft economic landing, without undermining the Bank's credibility on inflation." |
| Mortgages | |
| Experts have warned that a cut might not necessarily lead to lower rates for homeowners on variable rate mortgages. | |
| "The 'credit crunch' is affecting the availability and pricing of loans in parts of the market, as well as on the total amount and cost of funding available to lenders overall," said a spokesman for the Council of Mortgage Lenders (CML). | |
| "In this complex environment, it is incorrect to assume that a base rate reduction will, or should, automatically result in a cut in standard variable rates or discounted rates." | |
| The CML estimates that a fifth of the 11.8 million outstanding mortgages in the UK are standard variable rate or variable rate loans. |