02.12.08 by Rob Gill

Another Cut On The Cards

All eyes will be on the MPC this week with another rate cut expected on Thursday.

Expectations are for a cut of between 0.5-1%. The ‘Shadow MPC’, which meets under the auspices of the Institute of Economic affairs each month, voted for a full 1% cut, with one member even calling for 1.5%. A survey of analysts by Ideaglobal.com showed a median expectation amongst analysts for a 0.75% cut.

These predictions came ahead of more dire economic news as manufacturing showed a dramatic slowdown in Britain and the US. American manufacturing activity is falling at it’s fastest pace for 26 years as the ISM purchasing managers index, a survey of manufacturing activity, hit it’s lowest level since 1982. A similar survey in the UK showed industrial activity at it’s lowest since January 1992.

This news sparked a sharp sell off in equity markets on Monday with the FTSE closing down 5.2% and the Dow Jones following at 7.7% lower by the end of trading. These losses partly reversed the sharp gains seen last week, when global markets rallied as Barrack Obama’s economic team under Tim Geithner began to take shape. Monday’s falls thus no doubt included some short term profit taking

Money market rates continue to reflect the expectations of base rate cuts with 2 year swaps closing last week at 3.24% and 3 month Libor now below 4% at 3.88%

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