Tuesday, 16 September 2008
Will the BOE cut rates?
Logic would suggest, that faced with a collapse in the credit markets and also in the money markets the right decision to be made would be to cut interest rates. Maybe not by 1% at once, but certainly by a 0.5% by the year end.
Yet in Mervyn King's letter to Alistair Darling today, it appears that the Bank of England has become more hawkish about inflation. Hedging its bet by saying that inflation will soon peak at 5%, but also noting how high above target this is.
There seems to be a determination to keep inflation down, even as we enter a recession. Good news for savers, less good for borrowers. A high risk move, but I do trust the BOE members intelligence and integrity; let's hope they are lucky too.