January interest rate cut on the cards

19 December 2007
An interest rate cut could be on the cards in January after official data revealed inflation remained stable in November.

Despite the rising cost of petrol and oil, the Consumer Price Index – the government’s chosen measure of inflation – remained at 2.1% in November unchanged from October.

The Office of National Statistics says fewer increases in gas and electricity bills in comparison to a year ago is one factor keeping inflation stable. And falling air fares, vehicle maintenance and recreation activities such as the cost of eating out also played a part in ensuring inflation didn’t rise in November as predicted by some economists.

The Retail Price Index, which includes mortgage repayments, rose to 4.3% in November, up from 4.2% in October.

Vicky Redwood, an economist at Capital Economics, says there is a good chance of an interest rate cut in January or February next year.

She adds: “The Bank of England will be aware that future rises in gas and utilities bills could push inflation up, but these figures will help it make a cut early next year.”

And Angus Campbell, head of sales at Capital Spreads, says: “With high oil and commodity prices it looks unlikely that inflation will decline anytime soon, but the Bank of England is gambling on both global growth and UK GDP slowing to such an extent that inflation will naturally fall as a result.  

“In 2008 the decisions taken by the Bank of England are likely to be fiercely debated and dependent on incoming data.  With many economic growth forecasts being lowered for 2008, although a recession is unlikely, the Bank of England will have to act fast and cut rates should there be any indication of negative growth."

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