LONDON - The Bank of England's rate setting Monetary Policy Committee is all set to leave the rates unchanged when it meets for the first time this year on Thursday, but market gurus are calling for a speedy rate cut in order to kick start the economy.
The TUC in its latest report called Cut or Bust says that the manufacturing sector is set to lose about 80,000 jobs unless the rates are cut in the next few months. The British Chambers of Commerce has also joined the list in calling for an immediate rate cut so that struggling businesses can start anew in 2006. "We believe that business confidence could do with a certain amount of boosting. We have had below-trend GDP growth for five quarters in a row," said David Kern, the BCC's economic adviser.
In fact many analysts echo his comments. David Owen of Dresdner Kleinwort Wasserstein feels that unless the rate is culled by a quarter point, the Treasury will have to scale back on predictions of the 2 percent to 2.5 percent growth for this year. Instead the economy will grow by just about 1.7 percent bringing Britain on par with several European countries in terms of growth.
The reviving housing market could also do with a rate cut as its not really reviving at all and valuations are still way too high giving people a false sense of wealth, but Mervyn King, the Bank Governor had indicated in late November that the Bank could actually jack up the interest rates in order to fulfill inflationary obligations. Analysts feel that if this happens, it would be a disastrous economic start to the New Year.
Howard Archer, chief UK economist at Global Insight predicted that a rate cut was on the anvil, but it would not come immediately, "Given the continuing significant uncertainties over the inflation and growth outlook, we expect the MPC to remain on the sidelines in January. Indeed, it is very possible that the situation is still not clear enough for a majority within the MPC in favour of an interest rate cut to be reached in February," he said.
Posted
on : Mon, 09 Jan 2006 06:05 GMT | Loans News
By : Chris Rowe
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