The Bank of England will cut rates to 3.5 per cent, Capital Economics has claimed.
The Bank of England will move to reduce interest rates over the months to come, in a bid to end the economic slowdown.
Experts at Capital Economics said today that the base rate might even be cut as low as 3.5 percent, a full 1.5 percent below its current rate. This would provide a stimulus to growth, as it would be likely to result in loans providers reducing their repayment rates - making taking out credit cheaper.
The Bank of England has recently been facing a dilemma over its interest rate decisions. While the economy has slowed due to the continuing effects of the credit crunch, inflation has also been on the rise - with particular price increases noted with food and fuel.
This has effectively provided a block on the Bank's rate-setting Monetary Policy Committee from cutting rates, as implementing the reductions tends to have an inflationary effect. The Consumer Price Index - the government's preferred measure of inflation - currently stands at a 16-year high of 4.4 percent.
However, Capital Economics experts expects inflation to moderate over months to come, opening the door for the rate cuts.
Jonathan Loynes, chief European economist at Capital Economics, explained: "With inflation likely to rise further over the next few months I think they probably won't cut rates for a little while, [but] we have [predicted] the first cut coming through in the fourth quarter, possibly November, and we then think rates will fall quite sharply next year; perhaps to about three and a half per cent.
"Given the state of the economy, once these concerns about inflation are finally out the way then they will want to bring interest rates down pretty quickly in order to limit the severity of the economic downturn."
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