Industry experts have stated that a further interest rate cut in April has been made much more likely as a result of the tight lending conditions in place in the UK at present.
The Treasury Select Committee recently asked the governor of the Bank of England, Mervyn King, whether an April cut was more likely because of credit conditions, and King replied ‘yes’. Many industry experts had been predicting that the next rate cut would be in May, with interest rates having been cut in December and again in February.
Whilst the Bank of England has now suggested that the interest rate could come sooner rather than later, King also reiterated that the central bank would not be taking the same drastic action as the US Federal Reserve, which has slashed interest rates from 5.25% to just 2.25%, shaving a massive 3% off the base rate in a period of six months
The US Federal Reserve has taken this action in the hope of staving off recession.
One industry professional said that the situations in England and America were very different, and that the UK economy was not at risk to the same level as the US economy. Howard Archer from Global Insight stated: ‘We now expect the Bank of England to trim interest rates by a further 25 basis points to 5% in April rather than in May as we had previously forecast.
Further out, we expect interest rates to fall to 4.5% by the end of the year and to 4% in the first half of 2009.’ He went on to say that the situations between the two countries was very different, adding: ‘This is not an economy that has ground to a halt.’
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