Bank of England set to join cuts trend
THURSDAY'S expected interest rate cut by the Bank of England will be part of a series of aggressive cuts by international central banks, City analysts predict.
Economists have forecast a reduction of at least 0.5 per cent by the Bank’s Monetary Policy Committee, but some think it will cut rates by a full percentage point to 3.5 per cent.
Howard Archer, chief UK economist at Global Insight, said: “Given the serious straits that the economy is in, we believe there is a strong case for the MPC to be bold and cut interest rates to 3.5 per cent in one move on Thursday.
“We expect rates to come down to 2 per cent in 2009. This reflects our belief that the economy will contract up to and including the third quarter of 2009 before stabilising.”
The European Central Bank is also expected to reduce its key lending rate on Thursday, from 3.75 per cent to 3.25 per cent. Last week the US Federal Reserve imposed a half-point rates reduction to 1 per cent.
“Inflation is now very much yesterday’s threat and the ECB is only too well aware that an extended deep recession is the major danger facing the eurozone economies,” Archer said.
Central banks have been lowering the cost of borrowing since the summer as concern about global inflation has been replaced by fears of a worldwide recession.