Bank Base Rate set to fall to 1% on 5 February 27.01.2009

Author: David Whittaker Posted on: 27 January 2009

The next MPC meeting on 4 February with its announcement on 5 February is heading towards a 0.5% cut in Bank of England Base Rate (BBR) down to 1%.

The prevailing view is that 1% will be the last of the cuts in BBR and thereafter the Government and BoE will adopt other tactics including quantitative easing although Danny Blanchflower who sits on the MPC still believes that rates could yet go as low as 0.25% or 0.5%. His view isn't shared by the SWAP markets where 1 year SWAP rates have gone up slightly to 1.71% and 3 year SWAP is at 2.50% (27 Jan 2009).

The premium between BBR and LIBOR rate is only reducing slowly and stands at 68bps ie 2.18%. Whilst there are good technical reasons restricting downward movement, the margin this close to the next announcement is indicative of a 0.5% reduction.