Bank of England clears way for Interest Rate Cuts

The FT headline on the Bank of England quarterly inflation report story says

 "Bank of England clears way for rate cuts."

That's all we really need to know. The Pound fell to the lowest in almost two years against the dollar on the news. The Bank of England says the outlook for UK growth is "noticeably weaker" and that second quarter GDP estimates were likely to be revised lower. Bank of England Gov King said there is "bound to be a quarter or two" of economic contraction.

Inflation will remain elevated and rise to 5 percent, not falling back under the Bank of England 2 percent target for two years and that's if the Bank keeps rates at 5 percent.

This was gloomier than expected.

But the growth worry is bigger than the inflation worry. The FT reports "Analysts said the Bank of England, which has been reluctant to cut interest rates due to rising inflationary pressure", had effectively signalled an an easing monetary policy bias.

One analyst said "Inflation is yesterday's story and UK growth is falling to pieces. The pound is going to get absolutely thrashed."

Another analyst sees rates cut from 5 percent to 3.5 percent by Q3 next year.