Howard Archer Early 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 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 we believe that it is premature to rule out another 25-basis-point cut before the end of this year, we acknowledge that the odds are increasing that it will be delayed until early 2006.

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 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 earnings data may encourage the Bank of England to hold off from cutting interest rates in the immediate future as March while it seeks sustained clear evidence that the pay settlements for 2006 are remaining contained (the early signs are that wage moderation is continuing). However, we believe that interest rates are likely to be trimmed by a further 25 basis points by May.