UK - Interest rates are unlikely to fall any further following the Bank of England's 25 basis point cut to 3.5%, fund managers believe.
F&C Management head of government bonds Helen Roberts said the decision to cut rates was likely to have been a close call.
“In the absence of a major down-draught for the global economy, we believe that the US and the European Central Bank will keep interest rates steady for rest of the year – we therefore expect 3.5% to be the trough in UK base rates this year.”
Roberts said the next Inflation Report, due in August, would give more clarity on growth and the affect this will have on the Bank of England’s longer term inflation forecasts.
Isis Asset Management chief economist Steven Andrew said the reasons for the rate cut were understandable.“Global recovery is hesitant, the consumer is slowing and sterling is up on the foreign exchanges.”
Andrew also pointed out that the leading indicators were consistent with an improving industrial recovery during the second half of the year, so the Bank was likely to be prepared to let the consumer slowdown continue without the need for further cuts.
“The cut shows that the monetary policy committee under new governor Mervyn King is prepared to continue the preemptive approach followed by his predecessor, Eddie George.”
Transport & General Workers’ Union general secretary Sir Bill Morris called the cut a “welcome stimulus to British industry and manufacturing in particular”.
He added: “The Bank has listened to the concerns of business and the trade unions and I anticipate a boost to our domestic economy.”
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