Interest rate cut becomes more likely due to tighter lending conditions
The governor of the Bank of England, Mervyn King, has indicated that an April interest rate cut has become more likely as a result of the tighter credit conditions that are in place in the UK – news that will be welcomed by struggling homeowners that need to cut back on their outgoings. The governor was asked by the Treasury Select Committee whether an April cut was more likely due to current credit conditions, and he replied that it was.
Most industry experts had predicted that the next base rate cut would come in May, following the December and February interest rate cuts recently. However, King’s indication that the rates could be cut sooner have now changed these predictions.
One economist 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.’
Mr King has, however, warned that consumers should not expect the same sort of radical action that has been taken in the United States. He said that whilst an earlier rate cut may be on the cards, the Bank of England did not intend to slash rates in the same way as the US Federal Reserve, which has slashed interest rates by 3% over the past six months, taking the base rate from 5.25% to 2.25%.
Howard Archer from Global Insight said that the situations in the United States and England were very different, hence the decision by the Bank of England not to slash rates in this way. He said: ‘This is not an economy that has ground to a halt.’
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