MPC paves way for rate cut

The Bank of England's Monetary Policy Committee (MPC) all voted in favour of freezing rates at 5.75 per cent last month, it has been revealed, raising hopes of an interest rate cut before the year's end.

The second consecutive 9-0 decision in favour of holding rates was made before the effects of the US sub-prime crisis had made themselves felt in the UK markets, suggesting that the Bank could now have had its inclinations pushed the other way.

Earlier this summer the Bank's inflation report hinted that a rise to six per cent would be necessary, but that now seems out of the question given the current market conditions and the fact that inflation dropped from 1.9 per cent to 1.8 per cent in August.

"With this outlook [of lower GDP], and following the 50 basis point cut in US rates yesterday, our expectation is for a UK rate cut this year, probably in November," outlined the Centre for Economics and Business Research's chief economist Jonathan Said.

However, Global Insight's own chief economist, Howard Archer, has said that he does not expect the cut to take place before 2008.


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