IoD predicts interest rate cuts

Tuesday, October 18, 2005

The Institute of Directors (IoD) has predicted that a rise in inflation will not stop an interest rate cut.

Speaking following the announcement by the Office for National Statistics (ONS) that the consumer prices index (CPI) rate had risen to 2.5 per cent, the IoD remained positive that an interest rate cut could be on the cards in November.

Graeme Leach, chief economist at the IoD said: "Today's inflation numbers were better than expected.

"The increase in the headline rate from 2.4 per cent to 2.5 per cent was due to the impact of energy prices."

He added: "Excluding energy, inflation fell for the second month in a row, from 1.8 per cent to 1.7 per cent."

Inflation is now at its highest rate since 1997, with the ONS citing the biggest downward effect caused by women and children's footwear and outerwear.

The IoD are confident that this could play a part in persuading the Bank of England to cut interest rates: "All eyes now turn to this week's retail sales figures. If these are weak, the odds of a quarter point interest rate reduction in November will significantly increase," Mr Leach said.

The current rate of interest has been fixed at 4.5 per cent since August.
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