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Experts predict 1% cut in the base rate tomorrow

03 December 2008 / by Rachael Stiles
Interest rates could fall by one per cent tomorrow, experts predict, as the Bank of England moves to tackle the deepening recession in the UK.

The question seems not to be will the Bank of England's Monetary Policy Committee cut the base rate when it meets on Thursday, but rather by how much? Opinion is divided amongst economists, with most expecting a cut of 100 basis points while those less optimistic predict a cut of 50 basis points.

With interest rates already down to three per cent – their lowest level since 1955, after two consecutive cuts – the full one per cent cut would bring them down to just two per cent for Christmas, the lowest level since 1951.

If the Bank goes even further and cuts rates by more than one per cent, this will mark the lowest rate in the history of the Bank of England since it was created 314 years ago.

From a survey conducted by Citywire of leading economists, the majority were leaning towards a one per cent cut in tomorrow. Fund manager and chief economist at Ignis Asset Management, Stuart Thomson, told Citywire that he expects the full one per cent cut because "Everywhere the bank looks the economy is in recession", and inflationary pressures have been easing recently, which were previously hindering the MPC from offering significant cuts.

Stephen Heath, chief executive of, also thinks that the MPC will cut rates by one per cent based on the poor performance of the pound this week, yesterday suffering its worst fall against the dollar in one day since 1992 as it battles against weak manufacturing and mortgage data.

He said that "another rate cut in the 100 basis point region is almost inevitable as policy makers try to revive the economy by any means necessary."

The Association of Mortgage Intermediaries is calling on the MPC to give the full 100 basis points cut to bring relief to cash-strapped mortgage borrowers and to ease lending conditions. It is also asking for wider interventions from the Government in the mortgage market.

A one per cent rate cut is "essential", according to AMI director Robert Sinclair, "to keep the wider economy moving forwards in combination with the initiatives announced in the pre-Budget report last week."

This is not enough, however, to have the positive effect needed to get the mortgage market moving again, he added – "We want to see the Chancellor's in-principle support given in the Pre-Budget Report put swiftly into action."

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