Interest rates unlikely to be cut

Friday, October 21, 2005

Hopes that interest rates would be cut in November have received a set back following announcement of new retail figures.

The figures show an improvement in sales volume for retailers, meaning that a rate cut is unlikely.

The city predicted that sales would increase by 0.3 per cent, but this proved a gross underestimation as volume increased by 0.7 per cent in September.

This, coupled with the news that the Monetary Policy Committee voted unanimously for no cut in October, suggests a rate cut in November is unlikely.

"We think it is premature to completely rule out an interest rate cut in November, particularly if the forthcoming third quarter GDP and September retail sales data are very soft," said Howard Archer, chief UK economist at consultancy Global Insight.

Unfortunately, sales figures were not soft, suggesting that it is no longer premature to rule out a rate cut.

The interest rate looks set to stay at 4.5 per cent as it has done since August this year, the last time it dropped.

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