Inflation down: will there be an interest rates cut?
Most analysts agree a cut is likely but developments in next fortnight crucial
Speculation about a cut in interest rates has intensified after the UK’s inflation rate sank to its lowest level for more than three years.
Commentators said the chances of a rates cut at the end of January are higher after the rate of inflation dropped to 1.3% last month, down from 1.5% in November. The fall was met with surprise by City economists, who had expected the figure to remain steady.
The Guardian says the drop was “fuelled by struggling retailers offering a wider range of discounts in December”.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
It comes hot on the heels of GDP data that had already sparked speculation of a cut in rates.
Melissa Davies, from the stock broker Redburn, said that “very soft UK inflation data for December leaves the door wide open for a Bank of England rate cut on 30 January”, when the Bank of England Monetary Policy Committee (MPC) is next due to meet.
Andy Verity, the BBC’s economics correspondent, said “city traders who spend their working lives trying to anticipate moves in interest rates are convinced” the Bank will cut the official interest rate.
Michael Sanders, an MPC member who has voted for a rate cut at the last two meetings, said yesterday: “Risk-management considerations favour a relatively prompt and aggressive response to downside risks at present.”
–––––––––––––––––––––––––––––––For a round-up of the most important business stories and tips for the week’s best shares - try The Week magazine. Start your trial subscription today –––––––––––––––––––––––––––––––
However, Ruth Gregory, the senior UK economist at Capital Economics, was more cautious. She said the figures “might be enough to tip the balance on the MPC towards an imminent rate cut”, but added that “everything now depends on the economic news over the coming weeks”.
Matthew Ryan, a strategy analyst at Ebury, has also encouraged the public to not get too carried away. “While we acknowledge that the chances of a cut later this month have undoubtedly increased in the past few days, we think that the market has slightly overreacted,” he said.
“It is worth stressing that the three BoE members... all noted that additional data would be required before they decide on whether to vote for lower rates.”
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
-
North Korea tests ICBM, readies troops in Ukraine
Speed Read Thousands of North Korean troops are likely to join Russian action against Ukraine
By Rafi Schwartz, The Week US Published
-
Women take center stage in campaign finale
Speed Read Harris and Trump are trading gender attacks in the final days before the election
By Peter Weber, The Week US Published
-
Today's political cartoons - November 1, 2024
Cartoons Friday's cartoons - election on the brain, Bannon emerges, and more
By The Week US Published
-
US economy still strong in final preelection report
Speed Read It grew at a solid 2.8% annual rate from July through September
By Peter Weber, The Week US Published
-
Fed cuts rates half a point, hinting victory on inflation
Speed Read This is the Fed's first cut in two years
By Peter Weber, The Week US Published
-
US job growth revised downward
Speed Read The US economy added 818,000 fewer jobs than first reported
By Peter Weber, The Week US Published
-
US inflation drops below 3%, teeing up rate cuts
Speed Read This solidifies expectations that the Federal Reserve will finally cut interest rates in September
By Peter Weber, The Week US Published
-
Is the Fed ready to start cutting interest rates?
Today's Big Question Recession fears and a presidential election affect the calculation
By Joel Mathis, The Week US Published
-
Would Trump's tariff proposals lift the US economy or break it?
Talking Points Economists say fees would raise prices for American families
By Joel Mathis, The Week US Published
-
Will the housing slump ever end?
Today's Big Question Probably not until mortgage rates come down
By Joel Mathis, The Week US Published
-
US inflation cools further in welcome sign for economy
Speed Read Prices fell in June for the first time in four years
By Rafi Schwartz, The Week US Published