Fresh signs of Britain’s week economy have raised expectations of another big cut in interest rates by the Bank of England this week.

The facts:

The Bank’s Monetary Policy Committee (MPC) slashed the cost of borrowing by 1.5 per cent to 3 per cent last month. It was the biggest single cut in decades, reflecting the severity of the UK’s economic slump.

But with no let up from news of job losses – mainly in the financial services and manufacturing industries, and weak economic indicators across all sectors, experts say the MPC will almost certainly cut again this week.

It is the group’s final meeting of the year, and is critical because of flagging sales on the high street ahead of the traditionally busy Christmas period. The consensus is that the Bank will lop another 0.5-1 per cent off interest rates, brining them to fresh record lows.

The decision will follow news of job cuts at HSBC, Aston Martin and JP Morgan, and slowing sales at Tesco, a business considered by many to be ‘recession-proof’. Meanwhile new surveys show manufacturing output in freefall.

They said:

"There is little to cheer in the figures," said Charles Davis, economist at the Centre for Economics and Business Research (CEBR), referring to the manufacturing output figures.

"The sobering picture suggests the sterling depreciation is doing little to help them in the short term. Further to this constraints on bank lending are putting firms under even more pressure to stay afloat," he said. 

Howard Archer, economist at IHS Global Insight, said: "A 0.5 per cent interest rate cut from 3 per cent to 2.5 per cent seems the absolute minimum that the Bank of England will deliver on December 4.

“We believe that there is a very strong chance that the MPC will slash rates by a further 100 basis points and take them down to 2 per cent," he added.

We say:

With all the indicators pointing at a dreadful time ahead for the economy, the talk is not ‘if’ but ‘by how much' the MPC will reduce interest rates on Thursday.

With the Queen’s Speech taking place tomorrow, businesses everywhere will be listening out for encouraging news on interest rates, tax and government incentives.

Why not sign up to our small business newsletter and learn more?

Rating

By News Desk  on   Dec 02,2008

Add a comment  |  Add a rating  |  Email to a friend

Keywords

MPC    interest rates    tax    economy    manufacturing    bank   

Comments