BOE cut interest rates by 0.25% to 5.25%
7 February 2008
As widely expected, the Bank of England announced a 0.25% interest rate cut, lowering the base rate to 5.25%. The MPC faced their toughest test yet as price pressures remain high, putting constraints on the BoE’s ability to react to softening growth figures.
In light of falling house prices, various signs of slowing economic growth and waning consumer confidence, it will come as little surprise that the MPC have taken such action to shore up growth prospects. However, business activity is clearly not collapsing; as service sector growth proved earlier this week. We also have to bear in mind, that while house prices in the UK are significantly cooling, they are not plummeting to the extent that we have seen in the US. Unless the UK economy begins to show signs of rapid deterioration, we are therefore unlikely to see anything close to the aggressive rate cutting tactics used by the Federal Reserve.
As always, the market will look towards any accompanying statement followed by the release of the minutes from today’s meeting in two weeks time to gauge how serious policymakers regard recent inflationary pressures and whether or not there is scope for further monetary easing.