BoE: serving up a cut

What will Swervin' Mervyn be serving this week?

Bank of England Governor Mervyn King, the man who refused to inject cash into the money markets to help banks with liquidity problems, then reversed that decision after Northern Rock sought succour, was reappointed for another five years last week, ending speculation over his future. His position secure, his attentions will turn to this Thursday's monthly interest rate meeting.

Policymakers at the meeting are likely to vote for a cut in interest rates to safeguard the economy, but avoid the drastic cuts of the kind announced by the US Federal Reserve. Minutes from the Bank's rate-setting meeting last month showed that policymakers will use the February forecast round to assess the medium-term outlook for inflation, and the impact on that of both the upside risk to inflation in the short term and the downside risk to demand and activity. There is pressure from other areas: mortgage approvals fell in December to the lowest level since 1999, the strongest sign yet that house prices could fall sharply this year.

King has warned that rising oil, domestic energy and food prices could push up household bills to such an extent that inflation could rise about 3.0%, the government-set ceiling target. King would then have to write to the government explaining why inflation has breached its upper target level.