/24-7PressRelease/ - LONDON, UK, April 09, 2008 - The Bank of England may cut the interest rate to stabilize the UK economy and to nullify the growing pessimism among lenders and borrowers. According to the poll conducted by a leading daily, an overwhelming demand was in favor of rate cut. A majority of the UK economists expect the Bank of England to cut interest rates on considering the raft of weak economic signals. 48 out of 63 economists think the Monetary Policy Committee (MPC) will vote for a 25 basis points cut to 5 percent in the coming days.
The factors that necessitates the policymakers to take rate cut into consideration are:
CREDIT CRUNCH
The BoE sent a strong message to markets and consumers this week in its quarterly credit conditions survey that the credit crunch is likely to intensify and credit availability is going to be more squeezed. The squeezed lending scenario is now having a tangible impact on the real economy. Money markets remain tight with interbank lending rates well above the official borrowing costs.
INFLATION
Inflation was at the center of debate for the advocates of no rate-cut. They strongly resisted cutting rates next week due to the inflation problem that is helping to make this year what BoE Governor Mervyn King has dubbed the toughest challenge for the MPC since it was granted independence on rate decisions in the year 1997.
No doubt, the Consumer price inflation hit 2.5 percent in February and is expected to rise towards 3 percent in the coming months on the back of rising oil and food costs. Inflationary pressures are simmering throughout the UK economy as companies try to pass on their soaring costs to the customers. But, inflation without credit availability has made the life of common Britons a misery. For the well being of the economy as a whole, economists favor a rate cut.
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