No tracker mortgage rate cut expected

Monday, 03 March 2008 12:00

The Bank of England will not change interest rates this week after last month's cut to 5.25 per cent, a poll of leading economists reveals.

Homeowners with tracker mortgages and on lenders' standard variable rates are being told that a cut in their interest rates and repayments may have to wait until later in the year.

Howard Archer, chief European and UK economist, at Global Insight said: "Markedly faltering UK growth and the very real risk of a sharp economic downturn mean that further interest rate cuts are clearly on the Bank of England's agenda.

"Nevertheless, next week's meeting of the monetary policy committee (MPC) is highly likely to prove too soon to yield the next 25 basis point interest rate cut to five per cent given current elevated inflationary pressures."

Meanwhile Martin Ellis, chief group economist at the Halifax, predicted an interest rate cut in May and one later in the year, while Simon Hayes, UK economist at Barclays Capital plumped for cuts in may and August.

Ross Walker, economist for Royal Bank of Scotland, also predicted a May interest rate cut.

"Markets do not attach a very high probability to a cut in March," he said. "We continue to look for the next quarter-point cut to come in May, coinciding with the next Inflation Report and MPC forecasts."

However, new research from New Star points to a possibility of a March interest rate cut.

Simon Ward, economist at the UK fund manager, explained initial models suggested an April cut - but more recent economic data point to a narrow 5 to 4 vote to cut interest rates.

He said: "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.

"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."

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