Reuters poll predicts two interest rate cuts in 2008
January 5, 2008
According to a poll carried out by Reuters the Bank of England should be cutting interest rates twice in the coming year. The poll involved 49 economists, and he results of the poll showed that economic growth was likely to slow down to 1.9% in 2008 from 3.1% in 2007. This, state economists, is down to the cooling housing market and increased problems with consumer debt. However, economic growth should start to rise again in 2009 to 2.2%.
Economists have revised economic growth forecasts downwards for four months in a row. In August the economic growth for 2008 was predicted at 2.4%; in September it was revised down to 2.3%; in October it was revised downwards again to 2.1%; and in November it was forecast as 2%. It has now been forecast at 1.9%, although 2009 should see some improvement.
However, although economists predict that the Bank of England will have to cut interest rates at least twice as a result of the slowing economy, the results also show that inflation forecasts will limit the cuts that the central bank can make. Inflation is set to rise above the government’s 2% target to 2.1% for 2008, although it is expected to drop again to 2% in 2009.
One economist stated: “Inflation pressures are likely to prevent the MPC from cutting rates aggressively into accommodative territory going forward.”
Analysts have also stated that worries about the slowdown in the economy are overtaking inflation worries. One official stated: “We do not think that the potential for a firmer than expected inflation reading for Q4 as a whole will be sufficient to stand in the way of further policy easing in the coming months. After all the MPC is fundamentally forward-looking and it is its view of inflation in two years time that really matters for policy.”
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