BoE in no rush to hike rates
October 6, 2004
London - With Britain's red-hot housing market showing signs of cooling and consumer spending slowing, the Bank of England looks certain to leave interest rates at 4.75 percent on Thursday, analysts said.
"It's a foregone conclusion. They are not going to move," HSBC economist John Butler said.
"The economic news flow that we have had over the last month has been on the negative side. There is more evidence of the housing market slowing, evidence that the consumer (sector) may be softening and some evidence that the whole economy may have lost some steam over the summer."
All 16 forecasters polled by AFP's financial subsidiary, AFX News, said Bank of England policymakers would leave borrowing costs unchanged at their latest two-day monthly meeting, beginning Wednesday.
The Bank of England's nine-member monetary policy committee (MPC) has increased the main official "repo" rate by a total of 1.25 percentage points since November, each time by a quarter-point, in part to help cool house price inflation.
The repo rate, the rate of interest at which the British central bank lends to commercial banks, was last hiked in August.
"If one of the reasons why the Bank of England was hiking, was to cool the housing market, it seems like it's started to work," Butler said.
"It takes the pressure off them to move urgently (to hike again) but I don't think it necessarily means that rates have peaked," he said, adding that a further increase could come in November.
Meanwhile Alan Castle, an economist at Lehman Brothers, said British borrowing costs were likely to remain at 4.75 percent until at least early 2006.
"We actually see interest rate changes having peaked in August and staying at 4.75 percent in the near future," he said, citing a softer housing market as a major reason.
Britain's biggest mortgage lender, Nationwide, said British house price growth remained moderate in September, with prices rising 0.2 percent from August and 17.8 percent from the same period a year ago.
In August, prices rose by 0.1 and 18.9 percent respectively.
The MPC noted in minutes from its September meeting that third quarter economic growth could be weaker than anticipated, and that house price inflation may ease by more than forecast, with the consequent downward effects on consumption. - AFP
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