British interest rates stayed at 4.75 per cent for the 11th month today after a series of blasts killed several people in London, but economists said a cut next month was almost certain.
Financial markets had fully priced in a quarter-point rate cut before the Bank of England’s announcement at 11am because of the attack, but economists said the BoE probably wanted to wait for more information before acting.
"With the exact nature and implications of this morning's events in London unclear, the Monetary Policy Committee's reaction will likely have been to try and hold those events at arm's length," said Malcolm Barr, UK economist at JP Morgan.
Given reports showing consumer spending slowing fast and manufacturing heading toward recession, most analysts had already expected the BoE would end the cycle of rate hikes that started in November 2003 with a quarter-point cut in August.
Short sterling interest rate futures which had rallied in the wake of the London attacks pared some gains after the BoE decision but were still pricing in a cut next month.
The pound also gave up some of its losses. The FTSE-100 index of leading shares was down nearly two per cent as transport and leisure stocks fell sharply on fears the slowdown in retail spending would extend to services.
Economists said consumers - already feeling the pain of five interest rate rises in the last one-and-a-half years and soaring petrol prices - might further rein in their spending because of worries about safety.