Interest rates ‘set to fall to just 1%’
Interest rates are set to drop for a fifth month in a row when the Bank of England’s Monetary Policy Committee (MPC) meets this week, it has been predicted.
Northern Bank chief economist Angela McGowan and Alan Bridle from the Bank of Ireland are predicting a cut of 0.5% in the base rate to an historic low of 1%.
The MPC is due to begin its two-day meeting tomorrow, with the new rate being struck at midday on Thursday.
Ms McGowan said: “Inflation pressures are now falling back rapidly with the latest Consumer Price Index showing a decline of 1% over the month to December.
“In addition, disappointing Gross Domestic Product (GDP) data for quarter four in 2008 highlights the severity of the UK’s economic slowdown and the need for very low interest rates in the months ahead.”
Ms McGowan believes that it could be towards the end of 2009 before there are any visible signs of economic recovery.
Alan Bridle, the local head of economics and research at Bank of Ireland said the exchange rate would be a consideration although sterling had recently shown some signs of stabilising.
He said: “A zero base rate scenario in the UK still seems unlikely — the MPC would effectively be redundant and arguably could be stood down for a period — but in these uncharted waters few would rule out another reduction to just 0.5% before Easter.”
Interest rates have tumbled from 4.5% in October to 1.5% — a 315-year low.
However, many economists believe they will fall as low as zero.
GDP figures confirmed that the UK has been in recession since July and the International Monetary Fund forecast last week that the UK economy will shrink fastest in the developed world.
Next week the Bank of England is due to publish its quarterly inflation report, the target being 2%.