Rate cut expected, demanded in the week ahead |
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Sun, 31 Jul 2005 20:35
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LONDON: It's an interesting week ahead what with the prospect of the much-awaited rate cuts becoming a distinct possibility on Thursday when the Monetary Policy Committee of the Bank of England gets together for its monthly meeting.
Last month, despite mounting calls for the rate cut, the MPC held them steady at 4.75 percent for the eleventh month running. Few expect it to do the same this time around. For the economy has plummeted to unseen depths and consumer spending is all but non-existent. Also in July, four out of the nine MPC members had voted for a rate cut, while five had held out. Analysts say that in the backdrop of the deadly London bombings, the economy has come to a standstill and these five gentlemen will not hold out this time, "With growth prospects weakening the bank has the perfect opportunity to calmly reassure business and consumers amid increasing economic and political uncertainty," said Martin Temple, director-general of the EEF, the group which represents the engineering and manufacturing sectors. He must know what he is talking about for the manufacturing sector has weakened beyond measure.
The CBI and the British Retail Consortium have also openly called for rate cuts warning that it was dangerous to hold out on them especially as it was evident that the market was anticipating the cuts. John Butler, HSBC chief UK economist, said that he saw a 60 percent chance of a rate cut this week, "They've talked themselves into doing it. What will probably persuade them to do it in August is that GDP has come in more sluggish than expected," he asserted.
This would be the MPC's 100th meeting and it is widely expected that the rate cut issue will dominate the proceedings. Charlie Bean, the BoE’s chief economist has been voting for rate cuts since the past two months and it is unlikely that he will hold back in a situation that is currently spelling doom for the world's fourth largest economy. Steve Andrew, the chief economist at F&C Asset Management put things into a nice perspective when he said, "The bank led the market to the water and now it looks like it's got to deliver."
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