{"id":2512,"date":"2007-12-17T11:29:17","date_gmt":"2007-12-17T11:29:17","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=2512"},"modified":"2025-03-27T15:48:34","modified_gmt":"2025-03-27T15:48:34","slug":"uk-mpc-likely-to-be-cautious-on-rate-cuts","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=2512","title":{"rendered":"UK MPC likely to be cautious on rate cuts"},"content":{"rendered":"<p>Prospects for UK official interest rates in 2008 will depend as much on developments in money markets as the wider economy. I expect a further quarter-point cut in early 2008 followed by a period of stability. However, risks to this forecast lie on the downside. <\/p>\n<p>Economic growth is clearly slowing in response to earlier rate rises and tighter credit conditions but the risk of a recession in 2008 is still small, according to my indicator &nbsp;&ndash; see chart. A key supportive factor is the strength of corporate finances, with retained earnings more than sufficient to finance capital spending. This surplus provides insulation from the credit &ldquo;crunch&rdquo; and suggests companies are unlikely to cut investment and jobs on a significant scale. Stable labour market conditions would in turn boost the chances of a &ldquo;soft landing&rdquo; for the housing market and consumer spending. <\/p>\n<p>Inflationary pressures may prove stubborn despite a slowing economy. Business surveys show firms are planning price rises in early 2008, while a recent pick-up in household inflation expectations and fall in unemployment may lead to higher pay demands. These pressures reflect earlier monetary buoyancy &ndash; broad money supply grew by 13% pa between mid 2005 and mid 2007. Significant inflation relief could be delayed until 2009. <\/p>\n<p>The prospect of a moderate economic slowdown with little change in inflation does not argue for dramatic monetary easing. I think policy-makers need to achieve a fall in the key three-month interbank rate to about 5.5% in early 2008. Assuming money markets normalise, this would be consistent with an official Bank rate of 5.25%, implying a quarter-point reduction from the current level. However, the risks lie firmly on the side of a larger cut, either because the interbank lending market remains dislocated or global economic weakness leads to a sharper slowdown in domestic activity.<\/p>\n<p><span class=\"full-image-float-none\"><img decoding=\"async\" style=\"width: 500px; height: 300px\" alt=\"UKRecessionProbabilityIndicator.jpg\" src=\"\/storage\/UKRecessionProbabilityIndicator.jpg\" \/><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Prospects for UK official interest rates in 2008 will depend as much on developments in money markets as the wider economy. I expect a further quarter-point cut in early 2008 followed by a period of stability. However, risks to this forecast lie on the downside. Economic growth is clearly slowing in response to earlier rate [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2512","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2512","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2512"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2512\/revisions"}],"predecessor-version":[{"id":4821,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/2512\/revisions\/4821"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2512"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2512"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2512"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}