Views on interest rate movements from economists
December 26, 2007
After the December Monetary Policy Committee meeting the Bank of England announced that interest rates would be coming down by a quarter point taking the base rate from 5.75% to 5.5%.
Since the announcement economists and analysts have been looking forward to the coming year, and speculating on where interest rates will go next. A number of interest rate cuts are expected next year, and some think that the rate may fall as low as 4% by the end of next year.
According to one economist: ‘We expect another cut in January, with rates to target 5% by the second quarter. UK rates should be at 4.5% by the end of 2008, possibly even lower if the downturn is more severe. This has been a cut to alleviate the credit crunch and provide a rescue remedy for growth. Lower rates should help to put a prop under the UK housing market.’
Another economist stated: ‘Today’s decision by the MPC to cut interest rates from 5.75% to 5.5% is the first step in a prolonged period of monetary easing that could see rates fall very sharply. I previously thought that rates would drop to 5%, but I now think that they could eventually be cut all the way to 4%. Inflation is likely to rise further in the coming months. However, the rise in interbank interest rates means that the risk of a very sharp and prolonged economic downturn is growing by the day.’
One industry official stated: ‘Evidently the MPC is taking much more note of recent signs of a slowdown in the economy and its fears over the possible effects of the credit squeeze have begun to crystallize. The question obviously now is whether rates come down again and if so how quickly. The outlook is very uncertain. We are pencilling two further 25 basis-point cuts over the first half of next year.’
Alan Wright
26th December 2007
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