INTEREST rates could fall as early as November, analysts last night predicted, as the Bank of England continues to juggle with a slowing economy and rising inflation.
Minutes from the central bank's August meeting, published yesterday, confirmed that policymakers were split three ways for a second month running.
Arch "hawk" Tim Besley repeated his call for a quarter-point hike in borrowing costs, but "dove" Dav
id Blanchflower, below, again voted for a cut. The remaining seven members of the bank's rate-setting committee decided to keep borrowing costs steady at 5 per cent.
The minutes reinforce expectations that the next move in interest rates will be down.
However, they may also disappoint some investors who had been hoping that more policymakers would have joined Blanchflower in voting for a reduction.
Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said another three-way split showed "just how fine a line the Bank of England is having to tread".
She added: "The majority of MPC members thought the current weakness in the economy and the resulting spare capacity was enough to bear down on inflation without the need for an increase in the interest rate.
"Item (Club] still believes that interest rates will stay on hold during the summer months, but the possibility of a cut in November seems increasingly likely."
Ben Read, senior economist at the Centre for Economics and Business Research (CEBR), added: "Our central view remains that we will see the first rate cut in early 2009, with an outside chance of a cut before Christmas if it becomes clear that inflation is starting to turn the corner."
The majority of members of the MPC said the main risk of an immediate rate cut was that it could suggest the committee was more concerned about sustaining output growth than about returning inflation to its 2 per cent target.
Inflation hit 4.4 per cent last month and is expected to reach 5 per cent before the year end.
Bank of England governor Mervyn King warned last week that the UK economy faced at least one quarter of contraction.
The full article contains 358 words and appears in The Scotsman newspaper.
