July 20th 2005
British rate cuts appear ‘imminent’
The release of the minutes of last month’s meeting of Britain’s Central Bank revealed a growing minority of members in favor of lowering interest rates. The official vote was 5-4 in favor of maintaining interest rates at current levels. However, few economists and pundits had reason to believe the vote would be so close. While many traders had already begun to price lower interest rates into bonds prior to last month’s meeting, it seems a rate cut at the next meeting is a near certainty. Recent economic data not only suggests the economy is slowing down, but also that inflation is likely to be lower than expected. As a result, both the members of the Central Bank targeting inflation indices as well as those targeting general economic performance, would seem to have a solid basis for lowering rates. The Financial Times reports:
Sterling had already been on the ropes prior to the MPC announcement…Against this backdrop sterling fell to a 19-month low in trade-weighted terms.