Bank Forecast Interest Rate Cuts

Despite inflation surging over the 2% target for the first time since June, the Bank of England indicated that 2008 is likely to see 3 cuts in interest rates. This will bring rates down to 5%.

The rise in the CPI inflation rate from 1.8% to 2.1% is primarily due to rising food and fuel costs. With oil approaching $100 a barrel and shortages of food pushing up prices, it was inevitable that this would cause some cost push inflation.

However, apart from the temporary cost push factors there are some signs of a growing weakness in the economy.

• Firstly, there is growing evidence of a slowdown in the UK Housing Market 
• Retail sales have slowed down. Data releases yesterday showed an unexpected fall in sales in October of 0.1%. Consumer spending has previously been the strongest element of the UK economy.
• In their inflation report, the Bank of England have forecast inflation will fall back to 2% in 2009. This enables more room for a cut in interest rates
• Continued turbulence in the global capital markets. There are concerns the problems of Northern Rock may be repeated to other banks, possibly Barclays - which has a large exposure to the  sub prime market. - It recently announced a £1.7 billion loss in this regard

• Mortgage Interest Rate predictions
• Bank forecast Mortgage interest rate cuts at Telegraph