bank to take limited action on interest rates

15/02/2008 by Dave.

Despite many analysts forecasting that interest rates are set to fall over the coming months, one firm believes that cuts will be limited.

Legal & General has expressed its view that interest rates will not fall sharply due to a mixture of domestic and global market conditions.

It follows the publication of the Quarterly Inflation Report, which led many commentators to predict that the Bank of England would take a cautious approach to reducing interest rates.

However, most still forecasted significant cuts over the rest of the year but Legal & General is not convinced.

“It is important to remember that the pound has fallen significantly in value, particularly against the Euro and Asian currencies. This will provide a stimulus to the economy by making UK exports more price competitive but it will also mean that imports will be more expensive, putting upward pressure on inflation,” commented James Carrick from the firm.

“The Bank of England might find it difficult to strike a balance between moderate growth and stable inflation.

“With this backdrop the prospects for significant rate cuts in the UK are quite limited in my view,” he added.

Thebase rate of interest was cut by 0.25 percentage points in February, bringing interest rates down to 5.25 per cent.