Background to the UK interest rate cut

The Monetary Policy Committee cut interest rates by 0.25% today. Download a presentation containing some charts relevant to the BoE’s deliberations. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> Reasons for cutting base rates

Recent evidence points to an economy heading for a severe slowdown Inflationary fears remain – hints of ‘stagflation’ But the BoE judges that the ‘balance of risks’ has altered in the last few weeks They need to cut rates now (and may have to again next month or early in 2008) to stop the collapse in confidence This is an interest rate cut designed to improve the ‘animal spirits’ of consumers and businesses alike

Recent changes in rates Current rate 5.5 Last 5.75 Month ago 5.75 Year ago 5.0

Warning signs for the economy

Sharp fall in consumer confidence Evidence of declines in house prices Slowdown in construction sector output Signs of weaker sales on the high street Rise in the cost of lending between the banks Reduction in the supply of funds available for mortgage finance Raft of profits warnings from many companies

Suggestions for further reading on this

BBC news: UK interest rates trimmed to 5.5%

Times: The Bank better get this right (Kaletsky)

Guardian: Tough love from the MPC

Independent: Is Britain’s economy heading for the perfect storm?

Further information in this PowerPoint presentation 2764-Background to the UK interest rate cut.ppt