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February 13, 2008

Interest rates to fall gradually throughout 2008

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by Kay Mitchell

Interest rates to fall gradually throughout 2008

There has been a lot of speculation lately about interest rates with many analysts predicting further interest rate cuts will take place this year.

The Bank of England’s Monetary Policy Committee (MPC) cut interest rates by a quarter-point last week to 5.25%, the second such cut since December. However, back in July 2007, the base rate was raised to 5.75% which was the fifth rate rise since August 2006.

Capital Economics, the Independent Macroeconomic Research Consultancy, believes that the base rate of interest will fall to 4% but not yet. The organisation said it is confident further rate reductions are expected but borrowers will have to wait for them.

In a statement, Capital Economics said ‘the markets are increasingly coming round to our view that the slower the MPC cuts interest rates, the further interest rates might eventually have to fall’.

Capital Economics concluded by saying with inflation worries likely to increase over the next few months, we think that this move has further to go. We still think that interest rates will ultimately fall to 4%, but they are unlikely to get there until sometime next year.


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