“BoE Should Cut Interest Rates” Say Analysts
By Stewart Douglas
October 1, 2007
The Bank of England should lower interest rates when it meets this week in order to aid economic growth and avoid potential pitfalls of prolonged high rates, according to a statement made by the influential Ernst & Young Item Club today.
The move came just days before the Bank of England Monetary Policy Committee is poised to meet to decide interest rate policy for the coming month, with the ongoing market unrest likely to feature in any decision the committee makes regarding policy.
In the statement by the Ernst & Young Item Club today, a respected economic forecasting body, a cut in interest rates would help promote investor confidence at the Bank of England and drive investment in business and the economy as a whole.
The sub-prime lending fallout in the US has spread on a global scale, resulting in uniform liquidity pressures and ongoing dangers to lenders and businesses reliant on credit for expansion projects.
It is hoped that any interest rate cut, despite seeming an unlikely outcome, would help both borrowers and lenders in the finance industry, as well as promoting the interests of business on the whole.
Interest rates currently sit at 5.75% after five successive rises over the course of the year. Many analysts had previously forecast that rates would continue in their ascendancy towards 6.0% over the course of 2007, although sharply dropping inflation figures were quick to put paid to this kind of speculation.
Now with ongoing market turmoil forecast to cost the UK economy as much as 1% from its economic growth figure for the next year, it is quite possible that the Bank of England will heed the warning of analysts today and cut interest rates later this week.
However the majority expectation still remains that rates will be maintained at 5.75% over the course of the next month following the Monetary Policy Committee’s meeting this week.