Players on the London Stock Exchange will be setting their sights on a meeting next week of Bank of England policymakers, hoping it will yield the first reduction in British interest rates in six months.
The FTSE 100 index of leading shares closed Friday at 4,980.25 points, down 2.13 percent from the previous week, with trading roiled by uncertainty surrounding the fate of a sweeping US financial rescue package.
Analysts said sentiment should be positive at the start of trading Monday after the US Congress on Friday gave final backing to the Treasury's 700-billion-dollar scheme to salvage the foundering US finance sector.
The Bank of England's Monetary Policy Committee (MPC) convenes Wednesday, with its interest rate decision due on Thursday. Most analysts foresee a quarter or even a half point reduction that would take the benchmark rate to 4.75 or 4.50 percent.
"With the intense financial crisis and signs that the economy is nose-diving, we expect the MPC to cut rates 50 basis points at the upcoming October meeting," said Michael Saunders of Citigroup.
"There is a chance that action will be coordinated with other central banks outside the MPC meeting schedule but the case for easing is not dependent on other central banks. If needed, the MPC will go it alone." Saunders said "recent data make it clear there is a broad-based credit crunch and that the economy is weakening sharply. Recession seems inevitable and delay in easing would raise risks that the recession is really severe, far more severe than needed just to return inflation to target."
Saunders predicted that annual British growth would shrink by 0.6 percent in 2009, "with domestic demand falling at a similar pace to the worst periods of the last 50 years."
Comments
Comments are closed.