A further reduction in UK interest rates is expected to be sanctioned by the Bank of England today following the monthly two-day meeting of its Monetary Policy Committee (MPC).
Most City economists are looking for a quarter-point reduction, taking the bank's repo rate down from 5.50 to 5.25 per cent and reducing UK interest rates to their lowest levels since February 1994. But some economists are more optimistic, believing a half-point cut to 5 per cent is on the cards.
Although the MPC held off from cutting interest rates last month, minutes of its meeting showed that members felt rates were still too high despite their reduction from 7.5 per cent in September. Over the past month, weak economic data and "core" inflation below the British government's 2.5 per cent target have contributed to the case for still lower interest rates.
More particularly, the MPC expressed concern last month about the adverse economic consequences of the strength of sterling against the euro, to the point where manufacturing industry is again facing increased competition from imports in the domestic market as well as difficulties in export markets.
Although City economists are united in their expectation of lower UK rates today, the consensus does not extend to the prospects for further reductions during the spring. Most economists take the view that reductions in UK interest rates since last autumn have been sufficient to revive consumer confidence and the housing market.
This should make the difference between a recession caused by weak demand and a classic business cycle caused by liquidation of excess inventories.
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