Commenting on the choices facing the MPC at its first 2008 meeting next Thursday, David Kern, Economic Adviser to the British Chambers of Commerce, said: “The unusual pessimism that has greeted the start of 2008 exacerbates the risks that consumer and business confidence will decline, and strengthens the case for a modest cut in UK interest rates, to 5.25%, next Thursday.  “We understand the dilemmas facing the MPC. After cutting rates to 5.50% in December, the MPC’s natural inclination is probably to wait at least until February. Most analysts expect them to keep rates on hold next Thursday. A decision to wait would not be surprising, but would be wrong in our view. Given the immediate threats, the risks of waiting are greater today than the risks of acting early.

 

“While a 2008 economic slowdown is inevitable, a recession can be avoided if correct measures are adopted without undue delay. The ominous messages conveyed by the Bank of England’s new Credit Report highlight the vital need for the MPC to support the banking system, alleviate the credit squeeze, and prevent a further loss of confidence. A small cut in UK interest rates on Thursday would reduce the risk that dangerous emergency measures would be needed later in the year”