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Another nail-biter

After a nail-biter in December, January’s interest rate decision is shaping up to be just as close. The Monetary Policy Committee (MPC) seems pretty certain that rates need to fall significantly further and will be keen not to “fall behind the curve”. But inflation risks mean that it might still prefer to take a gradual approach to loosening policy. We think it marginally more likely that the MPC waits until February. But the fast-moving economic and financial situation means that the balance could easily tip towards an immediate cut, as occurred just before December’s meeting. Either way, we think rates will eventually fall as low as 4%.

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