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23rd Oct 2008
Further rate cuts predicted
Now, with the UK economy almost certainly in recession, some economists are expecting another half-point cut, down to 4%, at the next meeting in November. Only a month ago most economists predicted a first quarter-point cut to 4.75% to come in November at the earliest. Now some expect rates of 2% by next year.
Median forecasts from more than 60 economists polled by Reuters last Friday put the bank rate at 4% by the end of the year, 3.5% by the end of March, 3.25% by June and then a final cut to 3% in the third quarter. Rates are seen beginning to rise again in 2010. The respected Ernst & Young Item Club of economists predicts rate to fall to 3% next year.
With all that said, when Japan faced a banking crisis in 1989, it was followed by deflation and rates were eventually cut to 0% by the late Nineties in a bid to reinflate the economy.
The rate decision factors: The Bank of England MPC needed to slash rates to help avert economic meltdown. But its primary aim is to control inflation, which is now 5.2% against a target of 2%. Most economists expect aggresive cuts in the next year as inflation subsides due to recession.
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