Howard Archer Rate Quotations

We believe the door is opening for an interest rate cut early in 2006 if the economy fails to show sustained significant signs of improvement over the next couple of months.

With consumer price inflation below the 2% target level in both December and January and clearly below the levels forecast by the Bank of England in their November quarterly inflation report, a near-term interest rate cut suddenly looks a very real possibility again.

With one member of the MPC voting for an interest rate cut in December and Bank of England chief economist, Charlie Bean, recently making some dovish comments, the odds of an interest rate cut early in 2006 are rising.

While the fourth quarter GDP data and the relatively healthy mix of the components further diminishes the chances of a near-term trimming of interest rates, we still believe a 25 basis point interest rate cut is very possible in May.

This very much keeps the door open for an interest rate cut in February.

Pretty healthy retail sales growth in November reinforces belief that consumer spending is picking up to some extent, and reduces the case for a near-term interest rate cut.

Activity is benefiting from August's interest rate cut, increasing confidence in the housing market and still rising employment. This is likely to put a floor under house prices.

This (CPI data) very much keeps the door open for an interest rate cut in February, although the Bank of England may still prefer to wait while it monitors the strength of consumer spending and wage settlement levels early in 2006.

The minutes pour more cold water over the prospects for a near-term interest rate cut.

The Bank of England will not be happy to see that manufacturers output prices rose at an increased rate in December, as it suggests that they could be stepping up their efforts to pass on their higher input costs despite intense domestic and international competition and relatively soft demand.

The underlying picture that seems to be emerging is that consumer spending will be reasonably healthy over the Christmas period. If borne out by hard data, this dilutes the case for an interest rate cut early in the New Year.

The evidence of marked improvement in the manufacturing sector further guarantees there will be no interest rate cut this Thursday. Indeed, we admit it is looking increasingly questionable whether interest rates will be trimmed further.