LONDON (AFX) - The Bank of England's Monetary Policy Committee is expected to cut rates by 25 basis points at the conclusion of its monthly meeting today, despite this week's strong housing data, better-than-expected manufacturing sentiment and strong retail sales data, economists said.
They said that with the global environment so uncertain, the outlook for growth and consumer demand so unclear, and signs that the UK service sector activity is slowing, the MPC will err on the side of caution and cut by 25 basis points. .
However, economists said the decision is likely to be close but will be influenced by the Federal Reserve's 50 basis point easing earlier in the week. .
According to AFX News' consensus estimates, economists expect a 25 basis point cut. .
"There is an argument that the strength of domestic demand coming from both the consumer and public sectors, and the disappointing inflation data mean that UK rates should stay put," John Shepperd, global economist at Dresdner Kleinwort Wasserstein, said. "The recent upward revisions to GDP for the second quarter (and earlier) will have strengthened the case. Also, there could be a bias to waiting until the forecasting round associated with the quarterly Inflation Report in November," he added. .
"Nevertheless, we do expect the deterioration in the international environment to win the day, and expect to see another 25 basis point reduction in base rates announced (today)," Shepperd said. Steven Major, a gilt analyst at HSBC, said the BoE has its eye on domestic pressures. .
"Does the global risk outweigh domestic strength?" he asked. "Our view is that they will cut by 25 basis points regardless of the domestic situation as a precaution or insurance against a consumer sentiment slowdown." .
Analysts said yesterday's weak euro zone data will be an additional rationale for cutting rates. .
Peter Dixon, an economist at Commerzbank, said the decision to cut will be tight but that a 25 basis point cut is likely. .
"In view of trends in the global economy we look for the MPC to cut interest rates by 25 basis points as a precautionary measure against a sharp deterioration in confidence, even though the UK economy up to now has remained buoyant. However, the decision will be very tight," he said. .
Michael Saunders, an economist at Schroder Salomon Smith Barney, said Monday's strong UK data has tilted him from the 'yes' towards the 'no' camp. .
"In light of the past week's gains in equities and modest drop in consumer confidence, I was looking for a 25 basis point cut. But they probably won't as the Purchasers Managers Index was stable and house prices are surging. So I'm leaning towards a 'no' as things stand," he said, adding that he is not convinced either way.