Cost of borrowing: Bank dashes December rate cut hopes

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The Independent Online

Struggling homeowners hoping for a pre-Christmas interest-rate cut may be disappointed. Inflation moved unexpectedly higher last month, back above the Government's 2 per cent target, mainly due to food and oil prices.

As the prime concern of the Bank of England's Monetary Policy Committee in setting rates is keeping inflation below this target, any uptick in prices reduces the chances of an immediate cut. What's more, the Bank in its quarterly inflation report signalled that it expected inflation to rise in the early part of next year despite an economic slowdown. However, this doesn't mean that a rate cut will be put on ice for long. The report mentioned that if rates were to fall by up to half a percentage point in 2008, the inflation target could still be met.

The Bank's quarterly report is the first to be published since the world money markets were thrown into turmoil by the collapse of the US sub-prime lending market. The situation led directly to the Northern Rock crisis in September.

On the same day the inflation report was published, the Bank's Governor, Mervyn King, expressed concern that the problems in the money markets had yet to feed through to share prices.

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