Analysts predict interest rate cut

Published:
06 October 2008
Topic:
News,Money,Mortgages

The threat of economic recession is expected to result in the Bank of England cutting interest rates this week.

Many analysts believe the Monetary Policy Committee will reduce the official cost of borrowing by 0.25% to 4.75% on Thursday. But some forecast MPC members will announce a 0.5% reduction in the wake of dire economic data.

"The world has changed rapidly over the past few weeks and we now expect the MPC to cut the official Bank rate by 25 basis points to 4.75% next Thursday," said Philip Shaw, of Investec Securities.

"The pace of change in the financial landscape over the past three weeks has been frightening and has spread well outside the confines of the US."

The latest economic figures show activity in the manufacturing and service sectors has fallen to record lows, while house prices dropped at the fastest rate ever recorded during the year to the end of September.

Unemployment is rising and there are growing fears the UK is heading for a recession after economic growth stalled during the second quarter.

At the same time, credit markets still remain illiquid with inter-bank funding costs soaring.

Copyright © PA Business 2008

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