More BOE rate cuts ahead?

Economist Steve Affinito told BloggingStocks Thursday the Bank of England's statement took on a dovish tone, perhaps indicative of future interest rate cuts.

"The housing market in the U.K. has slowed considerably, with housing prices now falling in much of the country, so that may have generated the dovish tone in their statement," Affinito said. "Given the connection between the U.S. and U.K. economies, particularly the financial markets link, the Bank of England may be sensing that they run the risk of a housing-induced recession too. If so, more rate cuts are ahead."

Affinito noted that U.K. consumer-based inflation is likely to run about 2.0-2.3% for 2008, "not low, but not outrageous, either, which most likely will give the Bank of England some leeway to cut rates more."

Affinito added that a big factor in upcoming BOE rate decisions will be the future condition of the U.K.'s housing market. The U.K. has fewer subprime loans as a percentage of mortgages issued than the U.S. does, he said, but, conversely, its real estate price boom has exceeded the U.S.'s. If prices fall precipitously, "housing's drag effect on the U.K. economy may be just as serious as it is in the United States," he said.

The United States is using interest rate cuts and a likely $150-$156 billion fiscal stimulus package, currently being debating in the U.S. Congress, to attempt to counteract the contraction affects of a housing recession and subprime mortgage defaults. Economic growth has slowed substantially, with many economists believing the U.S. economy has already fallen into a recession.