Interest rates could fall to 4%

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Interest rates could fall to 4%

Wed 27th Feb 2008

The Bank of England's base rate could fall as low as four per cent over the next year, an economist with research consultancy Capital Economics has said.

Paul Dales predicted that the Bank's monetary policy committee (MPC) will cut rates slowly, which will in fact allow for a larger drop than if they had been "slashed", as they Federal Reserve Bank has done in the US.

The MPC faces a difficult "growth versus inflation dilemma" as it works to stave off economic recession, Mr Dales said, but at the moment it is erring on the side of caution with inflation.

He also commented on the issue of mortgage lenders not passing on cuts in the Bank of England's base rate to their own customers, which he referred to as "a continuing problem".

Mr Dales noted that "the money markets rates have actually risen since the Bank cut their base rate in February, whereas normally you would expect to see them fall sharply".

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