Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

THE OUTLOOK FOR INTEREST RATES

  • Comment
Last week's monetary meeting between the chancellor and the governor of the Bank of England passed almost unnoticed...
Last week's monetary meeting between the chancellor and the governor of the Bank of England passed almost unnoticed, so sure were the markets that there would be no further interest rate cut. This conclusion seemed fair enough given that there was an unexpected monetary easing barely three weeks earlier.

However, recently published economic data suggest that a further interest rate cut some time in the next few months is on the cards. An unexpected 0.7% m/m fall in manufacturing output in December underlined the current weakness in the UK's industrial sector. With domestic demand holding up reasonably well, the weakness in output represents firms' response to the combination of uncomfortably high stock levels and fading export demand. Given that the outlook for the US and continental Europe remains extremely subdued, the domestic manufacturing sector is unlikely to rebound in the short-term.

Signs of higher costs and prices in the economy would dissuade the Chancellor from any further interest rate cuts. However, the publication of last month's producer price data this morning suggests that inflation continues to ease at the factory gate, which bodes well for the price consumers pay for goods in the shops.

Most economists expect 6% to be the lowest level to which interest rates will fall in the short term given the current economic fundamentals, suggesting there will be one further 0.25% cut. The one question remaining is 'Will the Conservative partly resist the temptation to cut rates still further ahead of the election, in an attempt to boost popularity with the electorate?'
  • Comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions.

Links may be included in your comments but HTML is not permitted.