Andwithoilpricescontinuingtorise,projectionsinthebank’squarterlyinflationreport“suggestthat4。

5%”isthelowestthatinterestratescangosafely,despitemarketexpectationsthatrateswouldfallto4%bytheyear-end。

Twoscenariosaresuggestedinthereport:ifratesremainat4。

5%,thebank’scentralforecastputsinflationataround2%,itstargetrate,by2008。

Butat4%,the“centralexpectation”risesto2。

5%。

“Thatmakesithardtojustifyanotherratecut。



TheBankofEnglandregardslastweek’s0。

25%ratecutas“insurance,”agreedLexintheFT。

Themaindangertoits“sanguine”outlookis“wobblyconsumerdemand。

”Lastyearthebankarguedthatthelinkbetweenhousepricesandconsumerspendingwas“greatlydiminished,”butitadmittedintheinflationreportthatweakeninghousepricesmighthavehurttheconsumermorethanitexpected。

Buttheconsumerisnotthebank’sonlyproblem。

TheUKeconomycombinestheUSeconomy’simbalanceswiththeweakproductivityandageingdemographictrendsofcontinentalEurope。

Consumerdebtsareat“worryinglevels”andTreasuryforecastsareincreasingly“lesscredible”。

Lowunemployment,solidexportdemandandastrongservicesectormeansthereislittletosuggesttheUKcanjustify“anevenmoreaccommodatingmonetarypolicy”,whichwouldriskre-inflatingthehousingbubble–butmanaginga“softlanding”willneedmorethan“alittlemonetarytinkering。

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