Expectations rose following warnings from a Bank of England policy-maker that economic growth could fall short of Bank forecasts. Stephen Nickell, a member of the MPC, issued the warning in an interview with The Financial Times. He said there was a “serious risk” that economic growth would fall short of the Bank’s August forecast, forcing it to lower rates before the end of the year.
The MPC trimmed borrowing costs by a quarter point in August to 4.5 per cent by a 5-4 split with Mervyn King, the governor of the Bank, in the minority. However, earlier this month it maintained the repo rate with a unanimous vote.
Nickell forecast the economy would bounce back and said the future course of interest rates depended on whether that came to pass. He was quoted as saying: “My best guess is that it will, in which case we can respond to that.”
“What happens to interest rates very much depends on whether that forecast pans out,” he added.
His comments echoed a speech made recently by fellow MPC member David Walton who said growth would probably recover and inflation is likely to stay close to target.
Thomas Reeh, chief executive officer at national brokerage black&white.co.uk, said: “I believe that a further quarter point cut in rates could be accommodated. The only thing that could stop it are government concerns over inflation levels. Anything that will further stimulate the market is good news for brokers.”
