The Bank of England will hold interest rates at 5.75 per cent when the Monetary Policy Committee announces its decision on Thursday: that's the unanimous view of the City, though there is an almost equally firm belief that November's MPC meeting will see a reduction in rates.
Michael Saunders, of Citi European Economics, represented the central view when he said: "The main argument against an October cut is tactical: the MPC will choose to wait for November's Inflation Report meeting. The preparation of the Inflation Report is a tool to ensure that MPC easing is viewed as a response to downside economic risks rather than an inflationary bailout."
Similarly, Karen Ward at HSBC suggested that "the Bank will hold off cutting the base rate until there are clear signs the economy is weakening, but also to avoid further criticism that they are acting on orders from the Chancellor".
Philip Thornton, of Clarity Economics, added: "The MPC meets next week with its credibility on the line. In the wake of the Northern Rock saga and Mr King's and Sir John Gieve's rough ride before the Treasury Select Committee, the minutes of the meeting will have to be carefully crafted to give the right message both on monetary policy and the Bank's attitude."
Last month, the MPC voted by nine to nil to keep rates on hold, with even the most doveish member, David Blanchflower, toeing the majority's "wait and see" line.
Malcolm Barr, of JP Morgan, said: "Expectations for the MPC to hold rates in October are near universal ... We expect rates to be held, but that David Blanchflower will vote for a cut, while the remainder counsel a need to monitor the data and point toward the November Inflation Report as an opportunity to reappraise the medium-term forecast."
Pre-crunch, the MPC had increased rates by five quarter-point increments since August 2006 to deal with inflationary pressures.
The Bank's caution comes despite warnings from Alan Greenspan and others about a downturn. The former chairman of the US Federal Reserve told the BBC's Today programme that he was "less optimistic than one would like", believing that "the danger of recession has obviously risen, but my judgement, and looking at the forecasts of most American economists, is that it's still less than 50/50".
He said he was not about to forecast a "significant recession" in either the US or the UK economy. On the property boom, he judged: "If you wait long enough it will burst. It's the consequence of what one would think is a good, not a bad thing, namely a dramatic decline in real interest rates. It's really not something that central banks any longer have control over."
His remarks came before a meeting with the Prime Minister over the weekend. He has agreed to be an adviser to Gordon Brown, but whether his gloom makes an early election more likely – ie, before the economy endures a more painful downturn – remains to be seen.
On Thursday, Richard Syron, chief executive of the US government-sponsored mortgage agency the FMAC, or "Freddie Mac", said that "the US economy faces a 40 to 45 per cent risk of recession".
Meanwhile, the veteran investment guru Anthony Bolton added to the gloom by predicting that the London stock market may be in the first stages of a bear market lasting six to nine months.
Confidence in the eurozone and Japan is downbeat. According to BNP Paribas, the headline index for business confidence in the Eurozone's service sector "fell off a cliff" in September.
The MPC will be conscious of worries about the fragility of the UK economy. Yesterday saw British consumer sentiment dec-line sharply after the Northern Rock debacle, hitting its lowest level in almost two years, according to NOP, while Standard & Poor's said mortgage holders will face a "payment shock". About two million loans, or 17 per cent of the UK mortgage market, are due to reset to higher interest rates by the end of 2008. House prices, according to the Land Registry, rose by 9.4 per cent on the year, broadly in line with other surveys, suggesting a gradual cooling in the market.Reuse content