HARD-pressed businesses and homeowners are poised to see interest rates fall by a quarter of a percentage point this week, although there remains the outside chance of a larger cut.
According to a survey of analysts by Ideaglobal.com, there is a 70 per cent probability that the Bank of England will cut rates from 5.5 to 5.25 per cent this Thursday, and a 20 per cent chance of a half-point reduction.
Analysts put only a 10 per
cent chance on a no-change outcome, in a move that would come as a major disappointment to markets following recent decisive cuts by the US Federal Reserve.
Howard Archer, chief UK economist at forecasting body Global Insight, said the question appeared to be not whether the bank would cut interest rates, but rather by how much?
"With fears growing that the UK economy could be heading for recession and the Federal Reserve recently slashing its key interest rate by 125 basis points (1.25 percentage points], there is considerable pressure on the Bank of England to take bold action," he said.
"However, the odds seem to be stacked markedly in favour of the bank limiting its interest rate cut to 25 basis points."
Analysts believe that only a further major slump in equity prices this week or last-minute data indicating that the UK growth outlook has started to deteriorate sharply could possibly trigger a half-point cut.
Investec economist Philip Shaw said: "The (Bank of England's monetary policy] committee is unlikely to consider a 50 basis points move, but this cannot totally be ruled out if there is a sudden piece of weak news."
The expectations of lower borrowing costs came despite the "shadow" monetary policy committee voting just 5 to 4 for a cut this week. The committee, which meets under the auspices of the Institute of Economic Affairs, has a good track record at anticipating actual MPC decisions.
The full article contains 330 words and appears in The Scotsman newspaper.
