Interest rates to fall sooner rather than later

Interest rates are likely to come down soon according to the latest predictions from BDO Stoy Hayward released today.

The latest BDO Business Trends report claims short term business confidence has dipped indicating a slowdown in the UK economy. And although an interest rate cut is unlikely this month BDO says interest rates will come down sooner rather than later.

The report reveals that optimism and output are both weak suggesting the Treasury will miss growth targets set of between 3% and 3.5% instead posting just 2.2% in the first quarter of 2005.

And while the minutes of the latest meeting of the Monetary Policy Committee (MPC) reveal two of the nine members of the committee voted for a cut in interest rates, BDO expects the MPC to continue to monitor output and consumer spending patterns for a least one more month before deciding to go ahead with a rate cut leaving interest rates at their current level until at least August.

The BDO Output Index which predicts gross domestic product (GDP) movements a quarter head slipped from 100.0 in May to 99.4 in June.

Meanwhile the BDO Optimism Index which indicates GDP growth two quarters ahead rose from 100.5 in May to 100.9 in June. But this remain well below the levels recorded in the first quarter of 2005, says BDO, and would imply annualised growth of 29% per year in the fourth quarter of 2005. The report says domestic demand is likely to be weak throughout the remainder of 2005 as uncertainty over the housing market, interest rates and taxes keep consumers from making big ticket purchases.

BDO also claims inflationary pressures are likely to weaken over the coming months. The BDO Inflation Index dropped two points last month to 105.0, dropping significantly from 110.4 in January.

Peter Hemington, partner at BDO Stoy Hayward says the latest figures point to a shaky outlook for UK businesses in the second half of the year. “With inflation under control, we believe that a cut in interest rates is justified and that the MPC should act now," he adds

Meanwhile Douglas McWilliams, chief executive of the centre for economics and business research says: "Our latest forecasts for the UK economy continue to show signs of a slowdown, with businesses confidence waning as the economic outlook worsens. This decline in confidence is led by fears of a continued consumer slowdown and an end to the Chancellor’s appetite for public spending.”

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