UK signals possibility of rate cut

The US Federal Reserve Bank is currently in the process of raising interest rates. Meanwhile, the European Central Bank and Bank of Japan are preparing to begin implementing tighter monetary policies at unknown dates in the short term. The Bank of England, however, is moving in the opposite direction, having recently announced that it may cut rates in the first half of 2006. The Bank of England is caught in the unenviable position of trying to simultaneously manage a housing bubble, rising inflation, and slowing growth. Previously, Britain’s Central Bank had prioritized housing and price stability. This latest announcement, however, represents a change in tack. As investors price in the possibility of multiple rate hikes, the UK Sterling should add to its 6% decline against the USD so far this year. Bloomberg News reports:

“The market was always complacent about the performance of the U.K. economy,” said a currency strategist at Royal Bank of Scotland. “Comments…play into the hands of a bad performance for sterling against the dollar next year.”

Read More: Pound Drops, U.K. Bonds Rise as Bean Hints First-Half Rate Cut