Interest rates could be held further

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Friday 30th November 2007

Analysts predict the Bank of England will hold off on lowering interest rates until the new year - although the final vote of 2007 is likely to be a close call.

Thursday December 6th will see the nine members of the monetary policy committee (MPC) meeting to decide whether the base rate will enter 2008 at its current level of 5.75 per cent, or whether it should be altered.

While they could opt to set rates at any level, typically a shift of 0.25 per cent is made if any change is deemed necessary - with the likely direction being down, in light of the recent credit crunch.

But Howard Archer, chief UK and European economist at Global Insight, suggests that the evidence that such a decision will be made remains slim.

He makes the proposal based on the evidence presented by MPC members to the Treasury select committee recently.

"The overall tone of the MPC members testimonies very much suggests to us that they are generally reluctant to cut interest rates as soon as December," he observes.

"We suspect that the MPC will delay cutting interest rates until early 2008, with February currently the most likely month," he predicts.

Any such lowering will be followed up by two more rate cuts in the second and third quarters of the year, taking the base rate to a flat five per cent, Mr Archer anticipates.

His predictions are echoed by Capital Economics, which suggests that while the December vote is likely to go in favour of no change, it is to be close.

One possible influencing factor is the issue of expectations, where the opinions of the industry could drive the Bank to react; but the analyst notes that the committee could still be willing to "disappoint the markets".

"Our best guess, then, is that rates will remain on hold in December - but it is a very close call and the MPC will not put off the inevitable for much longer," Capital Economics contends. ADNFCR-8000200-ID-18377060-ADNFCR ©