07 Feb, 2008
Published: 14:34 Thursday 07 February
By: Matthew Goodburn, Investment Correspondent
London Asset Management economist Ian Kernohan warned that while
the quarter per cent cut would reduce the price of credit it would
not necessarily improve its availability.
However he welcomed its positive effect on market confidence
saying: 'Lower sterling is an important part of the transmission
mechanism and rate cuts are good for confidence, that magic
ingredient in a market economy.
He added: ' Expect more reductions later in the year.'
Jon Cunliffe, head of interest rate alpha at ABN Amro Asset
Management, predicted that the Bank would have to have cut rates to
below 4.5% by year end.
He said: 'Looking ahead a combination of weaker housing and
significant tightening in lending standards should exacerbate the
current slowdown in consumer spending and ensure that we see growth
well below trend this year. '
He warned: 'Elsewhere, whilst rising utility prices may put some
upwards pressure on consumer price inflation, we feel that the
disinflationary forces evident in the retail sector are likely to
Against this backdrop, he argued, the bank had 'ample scope' to cut
rates to below 4.5% by year end.
Standard Life global strategist Frances Hudson said the Bank's
quarter point cut and quarter point cut had been universally
She said : 'It was more or less taken as read that there would be a
0.25% cut and that the ECB would leave rates unchanged. The state
of the money markets now shows that Libor rates have narrowed and
there is less distress in that area.'
While the Bank of England cut interest rates by 0.25%, its European
Central Bank counterpart left rates unchanged at 4%.
Most commentators believe both decisions were priced in by