The Bank of England today signalled that further rate cuts are still a possibility this year and nex...
The Bank of England today signalled that further rate cuts are still a possibility this year and next, when it presented its latest quarterly update suggesting inflation will head below its 2.5% target by later this year or early next year.
The Bank's hand was stayed from any cut earlier this month by the steep fall in the pound against the euro, which muddied the waters in terms of inflationary effects – a weak pound is good for exports from the struggling UK manufacturing industry, but it pushes up prices of imported goods and services.
However, by signalling the forecast fall in inflation from the current 3% level, the Bank is clearly stating that it does not believe the current rate cycle has bottomed out.
And there are other factors in favour of further rate cuts.
EU statistics released today show that GDP growth in the eurozone is forecast at between 0% to 0.4% in the second and third quarters this year.
That means the eurozone is on the cusp of a recession, and coupled with the European Central Bank's switch of tactics earlier this month to heading off deflation from just worrying about inflation above its 2% target, it means that rates could also head down on the other side of the Channel.
The US is being pushed towards massive fiscal loosening by the Bush administration, which wants to implement further tax cuts.
Opponents in Congress fret about possible deficit spending problems similar to those run up during the Reagan-Bush years, but Alan Greenspan, chairman of the Federal Reserve, has already signalled that he sees deflation as a growing threat, so may allow some higher inflation if it helps keep US economic growth in positive territory.
US factory capacity fell to two-decade low in April: output fell in response to a slump in domestic demand triggered by the war on Iraq.
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