13 November 1998

Interest rate cut likely

BANKERS believe the latest Bank of England inflation report, released this week, increases the chance of further interest rate cuts.

The report predicts that economic growth will slow to 1% next year, lower than previously expected. This is mainly due to problems in Russia and the Far East.

"The monetary policy committee is likely to err on the side of caution, and reduce interest rates more than it would have done," says John Page, head of agriculture at Barclays Bank.

He predicts a base rate of 5.5% by Nov 99. "It is not a question of if they cut rates, but when." He suspects the MPC may leave it until the new year, having reduced rates by 0.75% in the past month.

"It does increase the likelihood of another cut, though it is by no means certain that will happen this year," says Steve Ellwood, head of agriculture at Midland Bank.

Last weeks base rate cut of 0.5% to 6.75% was the biggest for four years. It means a net gain of about £20m for farmers.

But the market appeared to have allowed for it; the £ strengthened by 3 pfennigs during the week since the cut was announced to hit DM2.79 on Wednesday. Ex-farm feed wheat values slipped £1 to £74-£75/t, says the HGCA. &#42