Slowdown in inflation hints at rate cut

Wednesday, February 13, 2008

The consumer price index (CPI) rose slower than expected in January which could mean that interest rates could be cut further by the Bank of England over the coming months.

Inflation was at 2.2 % in the month which is just above the Governments target.

It is edging away from the 2% target that the Government likes but at a slow rate and the previous concerns that inflation would rise sharply in January look to be unjustified.

The bank is currently wrestling with the threat of inflation against the back drop of a slowing economy. The more likely scenario for interest rates, is a gradual cut with a more wait and see approach. This is in stark contrast to the way the Federal Reserve has been cutting rates in the US.

The current UK base rate is 5.25%.

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