Seeing little inflation, Bank of England ready to cut rates

Section:

By Edmund Conway
The Telegraph, London
Thursday, November 15, 2007

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=AWKBW5TCQZVWLQFIQ...

The Bank of England is poised to cut interest rates as many as three times in an effort to ease the pain of the credit crunch, it indicated today.

In its closely-watched Inflation Report, the bank said it could comfortably allow interest rates to drop from their current level of 5.75 percent to around 5 percent without inflation getting out of control.

It is the firmest indication yet that it is preparing to cut the cost of borrowing for the first time since August 2005.

The first of the interest rate cuts could come as soon as next month, although most experts think it will be more likely to arrive in the new year.

The Monetary Policy Committee will then cut borrowing costs once more over the coming six months, before potentially dropping them once more thereafter, the report indicated.

The bank slashed its economic growth forecast, acknowledging that next year would be the hardest for the British economy for many years.

Governor Mervyn King also said that the housing slowdown had arrived, and said he expected house price inflation to drop even further in the coming months.

He said: "In comparison with August, the near-term outlook is less benign for both inflation and growth. Last week the committee judged that it was appropriate to leave [interest rates] unchanged.

"There will be some difficult decisions in the months ahead. But the MPC remains focused on meeting the 2 percent inflation target in the medium term."

He also warned that the credit crunch, which has pushed up borrowing costs for families and businesses, would go on for many months yet.

Mr King said during the press conference that he has not considered resigning, following criticisms of his handling of the crisis, which resulted in a run on Northern Rock -- the first UK bank run since Victorian times.

He added that it was too early yet to consider his reappointment, which is due to be decided in the new year.

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