Bank dampens rate cut hopes
The Bank of England has moved to curtail expectations that the cost of borrowing is set to fall significantly.
The Bank’s governor, Mervyn King, has said that, while the economy may be slowing down, with demand hit by the credit crunch, the continuing threat of inflation meant that the Bank is unlikely to introduce a number of cuts in interest rates.
The Bank believes that growth in the economy may drop to 2 per cent by the end of the year, but that inflation, fuelled by energy and food costs, may reach as high as 3 per cent, a full percentage point above the Treasury’s target figure.
Presenting the Bank’s inflation report for February, Mr King added, however, that the 3 per cent inflation high would only be temporary.
Cooling expectations that the Bank will vote to cut interest rates to as low as 4.5 per cent this year, Mr King suggested that the current 5.25 per cent rate may bring inflation below its target. The admission could indicate that, while the Bank will rule out big cuts, there may still be room for limited future reductions.
Date:14 February 2008
|