06 November 2008

Brewin Dolphin Chief Strategist Mike Lenhoff comments on the Bank of England’s one and a half point interest rate cut:

“The MPC’s one and a half percent rate cut is a justifiable response to the deterioration of the UK economy. Indeed, the rate cut signals the policy of easing that is now underway to avert a recession from degenerating into something far worse like the deflationary malaise that afflicted Japan."

“Theoretically, cheaper credit should help homeowners struggling with their mortgage repayments, but with some lenders unlikely to pass on all or only some of the new rate, it is unlikely that many consumers will be basking in the warm afterglow of today’s cut. It may, however, encourage an increase in consumer spending in the lead up to Christmas although all signs point to consumers remaining cautious with their discretionary spending.”

“That said, equity markets might be expected to show their approval of today’s MPC’s decision with a ‘relief rebound’ but the UK equity market is more likely to take its cue from the global markets rather than domestic interest rate cuts. At the very least, the collective effort among central banks to bring down interest rates is encouraging and should help to limit any further downside.”

“The forces of economic contraction are disinflationary. With this in mind, we expect the MPC to bring interest rates down to 2 percent in the coming months.’

-Ends-

For further information please contact:

Mike Lenhoff on 0845 213 3360 or mike.lenhoff@brewin.co.uk 

Mike Burgess (Hume Brophy) 0207 499 8736 or mike.burgess@humebrophy.com