Toucan

A decision on the interest rate is expected from the Bank of England today, with analysts anticipating no change – despite calls for a cut.

The rate-setting monetary policy committee (MPC) is under pressure to lower rates to help stave off the credit crunch – but their primary target of keeping inflation down may sway them against a rate cut.

The base rate now stands at five per cent – after three 25 basis point cuts since December - but inflation now stands 2.5 per cent, half a percentage point over the Bank's target.

Pressure for a rate cut also comes form the slowing economy. Yesterday official figures showed manufacturing output fell 0.5 per cent.

Last month's three-way split over interest rates, also adds further uncertainty to the pot.

"Today's interest rate decision from the Bank of England is becoming a closer call by the day," said Howard Archer, chief UK economist at analysts Global Insight.

"Recent weak data and survey evidence relating to consumer confidence, retail sales, the housing market and manufacturing activity heightens concern that the UK economic downturn is deepening and adds to the pressure on the Bank of England to quickly cut interest rates again despite current elevated inflation levels and risks."

However, he still predicts a rate cut to 4.75 per cent will come in June and interest rates will fall to 3.75 per cent by early 2009.

Bank of England governor Mervyn King did receive some good news yesterday.

The Treasury committee's report into his reappointment found: "During his first term as governor of the Bank of England, Mervyn King has fulfilled his responsibilities very well.

"The skills, qualities and experience which Mervyn King brings to his role as governor of the Bank of England will be greatly needed and tested in facing the challenges of his second term, not least the challenges arising from the current market turmoil and from anxieties over inflation.

"We expect that the governor will wish to strengthen the support and advice available to him to meet those challenges, particularly in the field of financial stability and in improving communications strategy and delivery. We wish him well in his second term."

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