While the clamour for a reduction in UK base rates has been growing over the last few days, it seems that the Bank of England are taking a firmer, longer term approach than their US and to a lesser extent European colleagues.  Despite massive pressure to reduce rates, they have held firm in the belief that a reduction now may be seen as fool hardy when the mist clears over the Northern Rock debacle.  So what are the prospects for the UK economy, and is a rate reduction inevitable?

At the moment the economic indicators are suggesting at best a softening of the UK economy, with spending under pressure and mixed signals from the housing market.  This all leads to the general opinion that the UK economy is slowing, a view which would seem sensible bearing in mind the recent credit crunch and the shock many consumers received  from the Northern Rock crisis.  But is a recession around the corner, or should a strengthening of the rate of inflation be our main worry?

Unless we see a drastic worsening of the credit crunch there seems little likelihood of the UK economy actually falling into a recession, although a slow down would seem a distinct possibility.  While the US and European banking authorities have signalled their intentions to reduce rates (with the US having already done so), many are seeing this as a panic reaction.  The Bank of England have always dealt with matters in a methodical fashion, and even in the worst days of the credit crunch there were no panic reactions. 

While some commend this type of strategy, there are many who are calling for the Bank to be more pro-active and reactionary - but this is the Bank of England we are talking about, a banking giant which has seen it all over the years.  The “Old Lady of Threadneedle Street” lives on……