March rate cut may go ahead

Posted: 04 Mar 2008 10:32:55 GMT

There is renewed hope that the Bank of England's Monetary Policy Committee (MPC) will cut the base rate of interest in March.

There is renewed hope that the Bank of England's Monetary Policy Committee (MPC) will cut the base rate of interest in March.

Recent forecasts from the vast majority of analysts have suggested that the MPC will choose to freeze the base rate in March before announcing a cut in the coming months.

However, New Star has now altered its forecast based on recent economic data and financial market developments.

The firm now believes that MPC members will vote marginally in favour of a 0.25 percentage point reduction when they meet on March 6th.

"The last Inflation Report indicated that the MPC expected to cut interest rates but was inclined to be cautious because of near-term inflationary pressures," said New Star economist Mark Ward.

"Credit market conditions have, however, deteriorated further since its last meeting, suggesting greater downside risks to the economy and a possible inflation undershoot over the medium-term," he concluded.

The base rate of interest stands at 5.25 per cent after two reductions between December and February.

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