Economists hail end of rate hikes

ECONOMISTS have signalled the end of interest rate rises following the publication of the Bank of England's December minutes. Minutes from the monetary policy committee indicate the Bank expects the next move in borrowing costs could be down.

All nine members of the Committee voted to keep the rate at 4.75% in December, but some members expressed concern about downside risks to growth rates.

The minutes said: 'For some members, the news was balanced and no change in interest rates was appropriate. For others, the downside risks to the inflation projection had increased, but not enough to make a persuasive case for a reduction in interest rates.'

Economists said the MPC meeting pointed to a rate cut next year. Speculation had been mounting that rates could rise further following a flood of reports indicated consumer spending was still rising.

Alan Clarke, an economist with BNP Paribas said: 'The key factor is that they are discussing the downside risks to growth and inflation. Although the evidence is not persuasive enough yet, they are obviously edging towards a rate cut. In our view, this is most likely to happen next April or May.'

ABN AMRO economist James Carrick said the minutes dampen the view rates will go up.

'Our view is that rates have peaked, but I don't think the MPC will cut interest rates in the near term. The MPC will be unwilling to create moral hazard in the housing market.'

RBS Markets Geoff Dicks said rates could come down in February when the next inflation report is published. He said the minutes pointed to the first sign of MPC members breaking ranks in either direction of the 4.75% rate.

Mark Miller, economist at HBOS, added: 'The fact that there is any mention of a possible rate cut is obviously enough to move short sterling, At first glance the minutes have a fairly dovish tone.'

The BoE held rates steady at for the fourth month running earlier in December after having raised them by a total of 125 basis points over the last year.

The MPC noted that that there was a greater risk of world economic activity slowing down than it had seen in the November inflation report despite the fall in oil prices.

Consumer price inflation, however, had turned out to be higher than expected in both October and November. 'But the appreciation of sterling on the month could help ease price pressures,' the minutes said.