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Bank of England Signals Need for at Rate Cut in 2008 Brian Swint The Bank of England signaled it has room to cut its benchmark interest rate at least once next year to prevent an economic slowdown without boosting inflation. The inflation rate will settle to the bank's 2 percent target in 2009 after rising above it next year, the central bank said. Its forecasts are based on market assumptions the bank will cut the main rate a quarter point to 5.5 percent in the first quarter. Growth risks are ``on the downside,'' and inflation risks are ``balanced,'' the bank said. ``The central projection is for growth to slow sharply in the next year,'' Bank of England Governor Mervyn King said at a press conference in London today. ``There has been some tightening of credit. Residential and commercial property investment are likely to moderate, possibly quite sharply.''
Britain's economy is cooling from its fastest growth since 2004 after the Monetary Policy Committee lifted the key lending rate to a six-year high. House prices are falling, and service industries expanded at the slowest pace in 4 1/2 years after contagion from the U.S. mortgage market spread. ``The report gives a clear signal that a series of interest rate cuts lies ahead,'' said Vicky Redwood, an economist at Capital Economics Ltd. ``The MPC will wait until early next year to cut.'' Forecast Rates If policy makers hold the rate at 5.75 percent, inflation will undershoot the target in two years, the forecasts show. The forecasts assume that the key rate averages 5.3 percent in the second half of 2008. The pound fell after the report, dropping 0.0005 of a penny to $2.0724 at 11:01 a.m. It had traded as high as $2.0844 earlier in the day. Bonds pared earlier losses, with yields on the 2-year gilt falling 1 basis point to 4.8 percent.
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