Anatole Kaletsky

Editor at Large and chief economics commentator, The Times

CUT BY A QUARTER POINT

The British economy is now unambiguously weakening and appears, as expected, to be following a trajectory almost identical to the one in America, but with a lag of about a year. The same is true of the eurozone, so very little help can be expected from exports despite the weakening of the pound against the euro. Notably, the pound has not fallen much against either the dollar or the Asian currencies, so recent sterling "weakness" should be seen as a sign of policy mistakes in Europe, rather than of easier monetary conditions in the UK.

Rising oil and food prices show few signs of being translated into higher wage settlements, so this increase in commodity prices should be treated as a change in relative prices rather than an inflationary threat.

Sushil Wadhwani

Former external member of the Bank of England’s Monetary Policy Committee

CUT BY A HALF POINT

a) The 3-month LIBOR rate remains elevated relative to the policy rate.

b) UK economic activity is clearly weakening — with weak outturns in survey data such as the PMI on output, CBI and BRC on consumption, and falling prices and low activity in the housing market.

c) There is evidence that the credit crunch is growing — the Special Liquidity Scheme to allow banks to swap mortgage securities for Treasury bills may have helped, but there is no real evidence that it has had a major impact, with, for example, the LIBOR spread remaining high.

d) I disagree with the Bank when it says that the housing weakness will not have much impact on consumption.

e) It is time for the Bank to be pre-emptive and get ahead of the curve on interest rates, rather than risk having to play catch-up later (as it has done in terms of money market liquidity measures).

Bronwyn Curtis

Chair, Society of Business Economists

HOLD

The liquidity crisis has eased with banks being able to raise capital and the introduction of the Special Liquidity Scheme. This may not bring down borrowing costs for households and corporates, but financial conditions have been loosened again by the 4 per cent fall in sterling since February.

There are more visible signs of weakening economic activity from falling house prices and the unexpectedly sharp drop in the services component of the purchasing managers index to its lowest level in 5 years. I would be voting for a pre-emptive rate cut now if cost pressures weren’t still rising. Oil prices have surged over $120 and input price inflation was over 20 per cent in March (the highest rate in more than 20 years). As demand weakens spare capacity will emerge and inflationary pressures ease, but the risk for the moment is that inflation expectations rise further.

Claudio Costamagna

Former vice-chairman of Goldman Sachs investment banking in Europe

HOLD

Sir Steve Robson

Former Second Permanent Secretary to the Treasury

HOLD

The housing market is cooling — as it needs to do to deflate its bubble. The economy is slowing — as it needs to do to bring about a necessary rebalancing. In neither case does the rate of change look troublesome. Price pressures are intense and do look very troublesome. The Bank needs to focus on its mission — which is to anchor inflation.

Geoffrey Dicks

Chief UK economist, RBS Global Banking and Markets

CUT BY A QUARTER POINT

Interest rates need to be lowered at least another 25bp. Last month's 25bp cut took the total reduction since last August to 75bp — which is barely sufficient to offset the monetary tightening that has come out of the credit crunch. The MPC may not cut this week since it seems to have an irrational fear of back-to-back moves. But if, as I expect, next week's QIR says another 25bp is needed, what really is the point of waiting another month or two?

Rupert Pennant-Rea

Former Deputy Bank of England Governor; chairman of Henderson fund managers

HOLD

I see no reason for the MPC to change rates this month. The news on economic activity around the world has, if anything, got slightly less ominous, and the news on inflation is definitely worse. The MPC has to remember its mandate, which is to control inflation, not to spare the real economy or the financial system from necessary adjustments.

Sir Alan Budd

Former chief economic adviser to the Treasury and founding member of the Bank’s MPC

HOLD

I vote for no change. The current pace of a cut in interest rates every two months seems to be an appropriate response to current economic conditions.

At least one further cut is likely to be justified but the MPC can reasonably wait for further news, particularly as far as demand and output are concerned.

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