Fur­ther cut in in­ter­est rates mooted as econ­omy de­clines

The Sunday Telegraph - Money & Business - - Front page - By Tim Wal­lace

IN­TER­EST rates are set to stay on hold for at least an­other two years as the econ­omy con­tin­ues to show signs of slow­ing, ex­perts be­lieve.

If the eco­nomic out­look gets any worse, the next move could even be a cut from 0.25pc to 0.1pc. The lat­est fig­ures for both con­sumer spend­ing and busi­ness in­vest­ment, pub­lished last week, were very weak.

Rates have not been raised for a decade but in a se­ries of com­ments ear­lier this sum­mer, the Bank of Eng­land hinted that con­di­tions were look­ing up. How­ever, the lat­est of­fi­cial data has scotched those hopes, and an­a­lysts are in­creas­ingly con­vinced that the chances of pol­icy tight­en­ing are re­ced­ing.

“Our fore­cast is for rates to re­main un­changed as far as the eye can see, which for us means the end of 2018,” Sam Hill, econ­o­mist at RBC Cap­i­tal Mar­kets, said. He had thought that the Mon­e­tary Pol­icy Com­mit­tee might cut rates un­til com­ments from pol­i­cy­mak- ers in­clud­ing Andy Hal­dane, the Bank’s chief econ­o­mist, in­di­cated that the base rate could be pushed up. But the weak­ness of con­sumer spend­ing and the fall in the savings ra­tio now means Mr Hill is once again con­sid­er­ing the prospect of a rate cut. He said: “The chal­lenge we see with the Bank’s cur­rent out­look is that they’re re­ly­ing on the idea other parts of the econ­omy will make up for weak­ness in con­sumer spend­ing”

The out­look also de­pends on smooth Brexit ne­go­ti­a­tions, an as­sump­tion the Bank has built into its mod­els.

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