October rate cut still likely, says IOD

8 September 2005

Despite today’s decision by the Bank of England to leave interest rates on hold for September, the Institute of Directors said they still expect a cut next month.

Graeme Leach, Chief Economist at the IoD, said:

“Interest rates have not been reduced this month, but we believe that as further evidence of an economic slowdown emerges, they will be reduced by a quarter point in October.

“Household spending is slowing, the Chancellor is in no position to provide a fiscal stimulus and too many companies are being forced to divert money away from business investment to plug holes in the pension deficit. Clearly oil prices are also providing upward pressure on inflation, but as economic activity slows, the ability of companies to pass on cost increases to their customers will be reduced. We think interest rates will be cut to 4.25% next month.”