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Fast forward to a February cut?

10th January 2008 | back to article listings BACK    print this article PRINT

In the end, it did not happen. Speculation had been rising that the Bank of England monetary policy committee (MPC) might do something highly unusual and cut interest rates in successive months. Come mid-day today the news emerged that they had done no such thing.

Most commentators had in fact predicted a hold, with 51 of those polled by Reuters expecting no change against the 12 who forecast a cut. The decision certainly flew in the face of the boldest predictions, such as that of Barclays Stockbrokers, which had suggested there would be cuts this month, next month and in April as well, bringing the base rate below five per cent.

But there were those among the economists who forecast no change who would not have been at all surprised if there had been a cut. Howard Archer, chief economist of Global Insight, had previously admitted to "sitting on the fence" over whether the next move would be in January or February, finally saying he was "marginally" favouring the latter.

Following the decision, Mr Archer said a reduction in the base rate next month was now "extremely probable" and that the vote this month would probably have been a very close one. Similarly, Nici Audhlam-Gardiner, head of mortgages at Abbey, commented that a February trimming of the base rate was "looking probable" unless "underlying conditions" saw a major change.

Those interested in investing in property, who will have been watching the decision closely, will discover that this view is widely held. John Phillips, financial services director at estate agency Kinleigh Folkard & Hayward, commented that he was "extremely disappointed" by today's news, but added: "I am almost 100 per cent certain that we will see a reduction in rates to 5.25 per cent next month, which will give an immediate boost to our economy." Another to predict a February rate cut was Ian Kernohan, an economist with Royal London Asset Management, who said a 0.5 per cent cut could be on the cards.

What will happen next month, of course, remains uncertain. It may be one major piece of data available to the MPC by the next meeting, the quarterly inflation report, will, as suggested by Lloyds TSB economist Trevor Williams, provide the confirmation of the economic picture needed by the MPC to justify another reduction. On the other hand, as Ms Audhlam-Gardiner suggested, events may alter the picture. John Phillips may be nearly 100 per cent sure of a rate cut next month, but even if that is the consensus, today has not necessarily made it certain.

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