Both the Inflation Report and the minutes of November’s Monetary Policy Committee (MPC) meeting suggested that another sharp interest rate cut is likely this month. Of course, they were published before the Pre-Budget Report giveaway was announced. But given the scepticism about the effectiveness of the VAT cut, we doubt that this will stop the MPC from cutting interest rates by another 100 basis points at the upcoming meeting. Meanwhile, we still expect rates to fall further to 1%, or even lower, next year.
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