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Analysts predict interest rate cut

The Bank of England will provide a boost to businesses this week

when it cuts the cost of borrowing for the first time in two years,

analysts believe.

Evidence of slower economic growth has led economists to predict a

fall in interest rates to 4.5% is a 'done deal'.

The move will signal a change in direction by the Bank's Monetary

Policy Committee (MPC), which has left rates on hold at 4.75 per cent for 11 months after a string of increases.

The bid to revive the economy follows official data released this

month showing the economy grew at its slowest rate in 12 years.

Other figures showed personal debt rose at its slowest pace in more

than two years in June, suggesting households' appetite for debt is


Philip Shaw, economist at Investec Securities, said the more

subdued economic background was the main motivation for easing


He said: 'Thursday should confirm what most Bank of England

watchers are suspecting, namely that the interest rate cycle has


The higher cost of borrowing has been successful in slowing

consumer spending and stabilising the housing market. However,

stronger retail sales data for the month of June complicated the


Mr Shaw said he expected the Bank to show a degree of caution when considering the outlook for the rest of the year.

He said: 'We are still tending to view that the MPC will be

cautious in untwisting the monetary screw too quickly.'

Investec expects rates to fall to 4% next year.

Economist John Butler at HSBC said: 'We expect a cut in August and then for the MPC to pause to await the response, if any, from the

corporate and household sector.'

Ross Walker at Royal Bank of Scotland believed this month's

decision was a 'done deal' and said he was expecting one further

reduction - although probably not until next year.

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