SWIP expects drop in UK interest rates over next six months

Richard Dingwall-Smith, Chief Economist at Scottish Widows Investment Partnership (SWIP) comments: "The decision by the Monetary Policy Committee (MPC) to keep rates on hold at 5.75% was no great surprise given recent comments from individual members.

"In our view, the UK economy is now at a turning point, with tighter financial conditions set to bite on the housing market and the prospect that financial services will become much less of a driver of overall growth. Indeed recent survey data suggest that the economy has now started to soften. Our forecast is for growth to slow from a robust 3.1% this year to a sub-trend rate of around 2.0% in both 2008 and 2009, with the risks weighted to the downside.

"The MPC face the complication that higher energy prices may push CPI inflation back up above the 2% target in the near term. Nonetheless we expect to see the official interest rate trimmed to 5.25% within six months, as evidence mounts that the economy is slowing enough to keep inflation to target on the two year horizon favoured by the MPC."