Bank of England governor Mervyn King has hinted that interest rates may be cut next month.
A reduction would be welcomed by retailers, which have suffered in the downturn as consumers rein in spending.
However, any cut would be unlikely to be on the scale unveiled by the US Federal Reserve, which yesterday made its biggest interest rate cut since 1982.
King said in a speech in Bristol last night: “We start the year from a position in which the bank rate, at 5.5 per cent, is probably bearing down on demand.”
He warned of continuing inflationary pressure – on food and energy prices – which meant that inflation would probably exceed the official 2 per cent target. He added that the pincer movement of inflation and weakening demand was the greatest challenge faced by the bank since 1997.
The US Federal Reserve decision had an immediate impact on the shares of hard-pressed UK store groups. Kaupthing analyst Matthew McEachran said: “The surprise US base rate cut by 75 basis points to 3.5 per cent left many UK retailers, especially home-related retailers, a lot higher as hopes of corresponding cuts to UK rates saw short positions closed out.”
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