Two interest rate cuts predicted
Updated on 22 October 2007
Borrowers could be in line for a double interest rate cut by May despite better-than-expected economic growth this summer, experts said.
Economists are forecasting two cuts from the Bank of England - to 5.25% - in February and May, amid predictions that the UK's robust economic growth will not hold up into next year.
The latest rate cut expectations come after a big week for economic data, capped off on Friday by official estimates that gross domestic product grew by 0.8% in the third quarter, ahead of forecasts for a slow down to 0.7%.
The UK's strong summer performance has scotched hopes for a November rate reduction.
But economists believe the global credit crunch will see GDP suffer in 2008 and prompt the Bank of England to ease rates back to more neutral levels.
The rates prediction comes as Ernst & Young's influential Item Club publishes its latest forecast for the economy, which warns that growth could slow to 2.1% in 2008 amid the effects of the global credit crunch.
The Item Club had previously pencilled in growth of 2.5% for next year before the meltdown in money markets took hold over the summer.
The rate cut predictions also come despite inflationary fears, with oil soaring to new record highs and higher food prices expected to increase the cost of living in the UK.
Howard Archer, Global Insight economist, said a slowdown in growth would help allay the Bank's inflationary concerns.
"At the moment the signs of a slowdown aren't strong enough to warrant a November move but a slowdown will become more evident and dilute inflationary concerns. If growth slows, it will ease concerns about company pricing power and wage moderation," he added.
These news feeds are provided by an independent third party and Channel 4 is not responsible or liable to you for the same.
