No increase in base rate again

For the ninth month in a row the Bank of England has decided to keep the base interest rate on hold, leaving it static at its lowest level in history, which is just 0.5 percent. The decision to keep the base rate so low has come as no surprise to most industry experts given the ongoing problems facing the economy and further threats of job losses. The announcement was made following the December Monetary Policy Committee meeting, which was held last week.

The Bank of England also announced that it would continue with its quantitative easing program to try and revive the economy, having announced last month that the plan was being extended to a total of £200 billion, reflecting an extension of a further £25 billion. Originally the maximum amount earmarked for quantitative easing had been £150 billion. No clue was given as to whether the scheme would be extended further next year.

Many industry experts have slated the quantitative easing programme, stating that it is clear that the plan is not having the desired effect on the economy but the government is continuing to use the programme to try and ease the economic problems. It is thought that when the current programme runs out in January the government will announce whether it plans to extend the scheme further.

In the meantime, an economist from Global Insight, Howard Archer, said that it was likely that the Bank of England would keep the base rate on hold at 0.5 percent until late next year, and even predicted that it could be 2011 before the base rate was increased. He said that fears over unsustainable recovery meant that it was far too soon for the government to think of policy tightening.

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Interest rates ‘may drop to 4% in 2009′

Although recent predictions suggested that the Bank of England interest rate would remain unchanged, an expert has said that it could drop to four per cent in 2009.

Howard Archer, chief European and UK economist for Global Insight, said that the Bank of England will almost certainly keep interest rates at five per cent this Thursday.

Mr Archer predicted that rates are unlikely to drop before August at the earliest, however he also said that they may drop next year.

“We still believe that interest rates could eventually fall as low as four per cent in 2009, but it will be a gradual process,” he commented.

However, he also said: “The bank will want clear evidence that wage moderation is continuing and that reduced demand is undermining companies’ pricing power.”

In related news, net credit card lending rose by £100 million in April, although this was still below the increase in March, according to the bank.

Tags: gradual process, Global Insight, Pricing, credit card lending, Credit card, bank of england, March, credit

BoE to cut interest rates next week?

The increasing downside risk due to the credit crunch is one of the reasons behind a possible interest rate cut by the Bank of England (BoE) next week, financial analysts have predicted.

Experts from six financial institutions including the Centre for Economic and Business Research, Global Insight, Nationwide and Barclays Capital, all anticipate that BoE’s monetary policy committee (Mpc) to cut rates by 0.25 per cent in April.

Lloyds TSB and HSBC said that there would be no change in rates this month.

Howard Archer, UK chief economist at Global Insight, said: “We believe that the increasing downside risks to UK growth stemming from tight credit conditions will prompt the Bank of England to trim interest rates by a further 25 basis points to 5.00 per cent at its April meeting.”

The decision by the Mpc on interest rates will be announced at 12 noon on April 10th after its monthly two-day meeting.

Currently interest rates stand at 5.25 per cent.

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Slowing of consumer spending is “worrying”

Despite the economy growing by 0.6 per cent in the last quarter of 2007, consumer spending slowed dramatically, according to new figures.

Findings from the Office for National Statistics (ONS) showed that increases in household expenditure fell to 0.2 per cent, a drop from the 0.9 per cent previously seen in the last quarter and the weakest growth since 2006.

Speaking to theherald.co.uk, Howard Archer, chief UK economist at consultancy Global Insight, said that the breakdown of the ONS’ data was worrying.

“The faltering in consumer spending, business investment and exports in the fourth quarter increases concerns that UK growth will slow markedly in 2008 and increases pressure on the Bank of England to cut interest rates again sooner rather than later,” he said.

According to the figures, business investment and exports also faltered at the end of last year, declining by 0.5 per cent and 1.2 per cent respectively.

Meanwhile, Tim Besley, member of the Bank of England’s Monetary Policy Committee, told the Daily Mail that a reduction in the rate of consumer spending was worrying.

Tags: Daily Mail, chief UK economist, UK growth, Business Finance, Global Insight, drop, england, Office for National Statistics