17 September 2001, 18:35 FOCUS BoE rate cut prospects rise after US move, but not before Oct 4
--- by Victoria Main ---
LONDON (AFX) - The likelihood that the Bank of England will cut
rates before long has risen following today's monetary easing in the
US, but possibly not before the conclusion of its next monetary policy
committee meeting on Oct 4, economists said.
They said an earlier move in response to last week's disastrous
attacks on the US could smack of panic.
"The chances of a cut have probably increased quite substantially,"
Credit Suisse First Boston economist Robert Jukes said.
"I think the next cut would take place at the next meeting rather
than before. Probably the bank will want to have some evidence of how
the events of last week are likely to impact on consumer confidence,
both in the UK and in the US," he said.
4Cast economist Ben Levett agreed an imminent BoE rate cut is on
the cards following the US move but that it is unlikely to take place
before Oct 4. "I think you would have seen it already alongside the Fed
if it was going to be ear lier, so it looks like it's going to be at
the MPC meeting," he said.
"I suppose the fact that it's a fair while until the next meeting
is one factor in favour of an inter-meeting cut, but at the moment
we're assuming it's going to be at the meeting," he said.
Levett predicted the MPC will cut the 5.0 pct repo rate by 50 basis
points rather than 25 points as expected earlier.
"I think before it was unclear as to whether they cut by 25 or 50
basis points. I think the fact that the Fed has moved by 50 basis
points and will probably have cut again by its Oct 2 meeting will
probably push the BoE towards a cut of 50 basis points," he said.
However, Investec chief economist Philip Shaw said that with
consumer spending still holding up in the UK, a reduction of 50 basis
points would not be necessary.
Pointing to recent comments by BoE governor Eddie George that a
concerted round of cuts is unlikely, Shaw forecast the MPC will wait
until its next meeting to make a cut of 25 basis points.
"We know that the MPC's been very concerned about the international
environment since the back end of last year, and obviously the events
of the past week will only add to the BoE's worries over the growth
outlook," he said.
"Consequently we think it is a matter of time until the MPC brings
rates down. On the timing, the governor said last week that a
coordinated interest rate cut was extremely unlikely. While that
doesn't rule out the prospect of a BoE move before the MPC meeting, we
would tend to take the governor at his word," he said.
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