Bank seen cutting interest rates in June

• IBTimes RSS
• Print
• E-Mail
• digg
• Del.icio.us

Mortgage lenders have been tightening their criteria, even though official rates have fallen, in a bid to maintain profits as it becomes harder for the banks themselves to borrow money.

British rates have not fallen nearly as fast as in the United States, where they have plummeted 3.25 percentage points since September, including a quarter point cut on Wednesday.

RISING PRICES

The BoE said in its Financial Stability Report on Thursday that the scale of losses and the economic fallout from the credit crunch may not be as bad as feared. But inflation remains a worry.

British policymakers are mandated to target inflation at 2.0 percent and BoE Governor Mervyn King has said policymakers face their toughest challenge since 1997 - when the BoE became independent in setting rate policy - as they try to balance rising prices against weaker economic growth.

BoE Chief Economist Charles Bean said last week that inflation was likely to rise above three percent this year as the weaker pound exacerbates the impact of rising commodity prices, and that the market turmoil was lasting longer than previously expected.

Consumer price inflation held steady at 2.5 percent in March, but a poll by Reuters last week found economists forecast inflation at 2.6 percent in 2008.

Britain's economy grew at its weakest rate in three years in the first quarter at only 0.4 percent, growing below the long-term trend, potentially giving the central bank more scope to cut rates.

• 1
• 2