Interest Rates to be Reduced
Wednesday January 7th 2009
The Bank of England's official interest rate could be slashed to an unprecedented 0.5 percent by the end of the year, a top economist has predicted.
Arek Ohanissian, economist at the centre for economics and business research, made the forecast due to what he sees as the severe nature of the current economic downturn.
The rationale behind interest rate reductions from the Bank is that the cuts are passed on to customers by other lenders.
Therefore, loans including bridging loans and commercial mortgages become easier to repay - providing a boost to the economy.
The reductions would come over a year in which the UK economy is predicted by experts to shrink by between one and three percent.
Mr Ohanissian said: "We are thinking that [the rate will be] taken down, by the end of the year, to half.
"The economy isn't going to get any better between now and then so the Bank is going to need to do something."
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, added that he expects a 50 basis point cut from the Bank later this week, taking the rate from two to 1.5 per cent.
"The cut will be driven by continuing deterioration in the economic news flow - weak retail sales, falling house prices, job cuts and the inability of businesses to access bank finance et cetera," he added.