Loans - Economists predict a fall in the interest rate - 29/08/2008

 
 
 

Economists have predicted that the interest rate will be lowered in the next month, in the aim of minimising the economic slowdown, according to the key figures in the firm, Capital Economics.

Growth in the last quarter was said to be at 0 per cent, which hints that a recession may be just around the corner for the British economy.

The lower interest rate could encourage people to hold a greater value of money, spend more and also stimulate consumption. Also the interest paid on loans would also be lower, so borrowing would increase in response to the cut.

Experts at the firm believe that the interest rate could be cut to 3.5 per cent; lowered by 1.5 per cent of the present rate, which stands at five per cent. With the present credit crunch and also inflation, pushing up the prices of consumer goods such as food, electricity and fuel, spending levels have fallen drastically.

However, the Bank of England’s Monetary Policy Committee has been reluctant to lower the interest rate as, doing so tend to cause inflation to be more apparent.

Jonathan Loynes, chief European economist at Capital Economics, said: "With inflation likely to rise further over the next few month. I think they probably won't cut rates for a little while, [but] we have [predicted] the first cut coming through in the fourth quarter, possibly November, and we then think rates will fall quite sharply next year; perhaps to about three and a half per cent.

"Given the state of the economy, once these concerns about inflation are finally out the way then they will want to bring interest rates down pretty quickly in order to limit the severity of the economic downturn."

   
 
     
 
 
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