Bank of England ‘set to cut rates’

The Bank of England looks set to cut interest rates when it meets this week as evidence mounts that the UK is facing a slowdown, economists predicted today.

The possibility of a cut looked increasingly likely as figures out last week revealed the manufacturing sector was contracting at its fastest rate for two years, with the service sector also slowing.

City experts are now split over whether the bank’s monetary policy committee will reduce rates by a further 0.25%, or a more aggressive 0.5% when it meets on Wednesday.

The base rate is currently running at 5.5%, following two cuts already this year, reducing mortgage rates to their lowest levels since the 1960s.

David Smith, an economist at Investec, said the MPC may not go for a full 0.5% cut as this could cause panic.

He said: ‘‘It is actually a slowdown in the UK. It is no longer a concern that we may be hit, it is now actually a slowdown situation.

‘‘We would be looking for a cut of 25 basis points in May and a further 25 points in June.’’

Alex Scot, of Barclays Stockbrokers, also predicted the MPC would cut rates.

He said a 0.25% cut would be preferable as it ‘‘held out the promise of further cuts further down the line’’.