Hopes fade for March base rate cut

by Gill Montia

Story link: Hopes fade for March base rate cut

The likelihood of a base rate cut in March is fast receding with a consensus of analysts now expecting interest rates to remain unchanged when the Bank of England’s Monetary Policy Committee (MPC) meets next week.

In both December and February, the committee reduced the base rate by 0.25%, to its current level of 5.25%.

Despite widespread forecasts that interest rates will continue to drop throughout 2008, the MPC is now faced with the difficult task of balancing signs of an economic slowdown with rising inflation, and is unlikely to make a further reduction next month.

Howard Archer of Global Insight, the economic forecasting consultancy, is expecting a continuation of the downward trend, but not until later in the year, explaining: “Markedly faltering UK growth and the very real risk of a sharp economic downturn mean that further interest rate cuts are clearly on the Bank of England’s agenda.”

Jeavan Lolay, economist for Lloyds TSB, adds: “We had a rate cut last month, and reading from the [MPC] minutes of that, the key message is that the members of the MPC are concerned about the trajectory for inflation in the short term.”

The MPC will announce its decision on Thursday of next week.