There is talk that interest rates in the UK could be cut in April, earlier than expected.
This is in response to further deterioration in the money markets in the last few days.
The Monetary Policy Committee (MPC) members voted 7-2 to leave rates on hold last month. The fact that 2 members voted to cut rates last month is a sign that rates could be reduced to 5% next month.
The ongoing deterioration in the credit markets is sufficient for the MPC to act as the prospect of recession far outweighs the prospect of rising inflation. This crisis is serious and rather than worrying about the price of bread they should act swiftly.
The pound is weak, the credit markets are still effectively shut and UK families are struggling.
While the US Federal Reserve are slashing interest rates, the Bank of England seem to be doing little, preferring to worry about the governments 2% inflation target. Now we do not necessarily agree entirely with the US tactics which unfortunately we believe is a great contributor to the current situation.
Although the crisis is being blamed on poor lending practices in the US, there is no denying that the Federal Reserve took interest rates to low back in 2003 and then had 17 consecutive rate rises. This was obviously going to hurt US families as those who had taken out mortgages when rates were low would be struggling when rates were raised rapidly. They are by no means immune from blame. In the UK the government would prefer not to have this type of boom and bust economy and prefer more stability.
An interest rate cut in the UK would be welcomed by all and with any luck we may receive one earlier than we were previously thinking.