Bank sparks hopes of April rate cut

From London Stock Exchange

March 27, 2008

Bank sparks hopes of April rate cut

Comments made by the governor of the Bank of England have fuelled speculation that the base rate of interest could be cut as early as next month.

In an address to the Commons Treasury Committee yesterday, Mr King was asked if the tighter lending conditions currently prevalent in the money markets made an interest rate cut more likely, to which he answered "yes".

The admission has been interpreted by analysts that the Bank will cut rates earlier than had been expected.

Howard Archer, chief UK and European economist at Global Insight, said: "We now expect the Bank of England to trim interest rates by a further 25 basis points, to 5 per cent in April rather than May.

"Further out, we expect interest rates to fall to 4.5 per cent by the end of the year and to 4 per cent in the first half of 2009, as we believe that extended below-trend growth will eventually significantly undermine companies' pricing power and limit wage growth, thereby diluting underlying inflation pressures."

News of Mr King's comments comes as the interbank rate for sterling funds over three months rose to six per cent yesterday.

This is the highest figure since December.