Japan slashes interest rate to 0.1% sparking rumours the UK will follow

19 December 2008 / by Rebecca Sargent
The Bank of Japan slashed interest rates by 20 basis points to just 0.1 per cent yesterday in attempts to prevent a deeper recession.

The drastic measure mirrors what is going on across the globe; earlier this week the US Federal Reserve cut its rates to between 0 and 0.25 per cent, while in the UK the Bank of England has brought rates down from 4.5 per cent to two per cent in the space of just two months.

However, minutes from the Bank of England's Monetary Policy Committee's December meeting hint at further interest rate cuts for the UK in January, and even considered a higher cut for December, but said that "A number of arguments were, however, advanced against a larger cut."

The MPC members voted unanimously for a one per cent cut for fears that, "an unexpectedly large cut could undermine confidence in the economy more widely."

Worldwide interest rate cuts to such low levels are, according to experts, an indication of what is in store as the UK and US enter a recession and the rest of the world looks set to follow suit within the next year.

France is one such country that looks set for recession as the country's national statistics agency, Insee, has revealed that it is unlikely to escape unscathed next year, as the French economy shrank by 0.8 per cent in the last three months of 2008.

But it is not just France that Insee has reported as having a shrinking economy, in quarter three of 2008 its statistics show Japan's economy fell by -0.5 per cent, the UK's by the same amount, and the Eurozone's by -0.2%.

Meanwhile, as the worldwide economy continues to decline, experts are predicting that the UK will follow the drastic examples set by Japan and the US and slash interest rates to historical lows.

© Fair Investment Company Ltd