8 October 2008
Following Australia's one percentage point cut in interest rates, pressure is mounting on the Bank of England to make a similarly dramatic move. According to Simon Ward from New Star Asset Management, the monetary policy committee may decide to "shock" markets with a half or even three-quarter percentage reduction. He said escalating financial turmoil is damaging economic confidence at the moment, likening the climate to that experienced following the 9/11 attacks in 2001. In the wake of these attacks, the monetary policy committee cut rates earlier and by more than most analysts had been predicting, he pointed out. Past actions therefore suggest that a large rate cut could now be on the cards, acting as "insurance against a worst-case scenario". "A week ago most economists thought it was too early to cut rates. Now there will be disappointment with a half-point reduction," Mr Ward remarked. For consumers with secured loans, a falling base rate could translate into lower interest repayments. Howard Archer, the UK Economist at Global Insight, predicted recently that the base rate could fall to 3.5% next year, down from its current level of 5%.
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