Bank of England Will Probably Lower Rate


Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet may today signal that growth is increasingly replacing inflation as their biggest concern.

U.K. policy makers will lower their benchmark interest rate by a quarter point to 5.25 percent, according to all but two of 61 economists surveyed by Bloomberg News. While the ECB will probably leave its key rate at 4 percent, Trichet may indicate the region's expansion isn't as strong as anticipated.

Europe's economy is weakening as U.S. growth falters, pushing King to follow Federal Reserve Chairman Ben S. Bernanke in cutting rates and pushing the ECB to soften its inflation- fighting rhetoric. U.K. house prices fell for the first time since 2000 last quarter and the euro region's service industries grew the least in more than four years in January.

King and his eight colleagues on the rate-setting Monetary Policy Committee are looking to bolster the U.K. economy, which they predicted in November would grow just 2 percent this year after 3.1 percent in 2007. Since then, mortgage approvals dropped to a nine-year low in December and the faltering U.S. economy is undermining the prospects for global expansion.

The Bank of England publishes its decision at noon in London. The ECB makes its announcement 45 minutes later and Trichet talks to reporters at about 2:30 p.m. in Frankfurt.

The second U.K. rate reduction in three months probably won't be the last, with the bank paring the benchmark to 4.5 percent by the end of the year, according to the median forecast of 44 economists in a Bloomberg News survey. ``It's the end of a long-term boom for the U.K.,'' said Peter Dixon, an economist at Commerzbank AG in London.

If it cuts borrowing costs, the Bank of England is gambling that weaker expansion will restrain inflation, after it topped its 2 percent target for three months. That would follow the pattern of the Fed, which pushed inflation concerns aside last month to lower rates at the fastest pace since 1990, to 3 percent, in a bid to avoid recession.


TradingEconomics.com, Bloomberg
2/6/2008 7:20:12 PM