Top economists said today that interest rates could be slashed by up to two per cent over the next 18 months.
The Bank of England now has no choice but to start cutting base rates to as little as 3.5 per cent as the credit crunch bites, they said.
Official figures released by the Bank today showed the squeeze on consumers and businesses is set to intensify over the coming three months.
However banks and building societies have told the Bank they expect to cut the size of the mortgages they can offer to customers even more severely in the secondquarter of the year than they did in the first three months.
City economist Jonathan Loynes, of forecasters Capital Economics, said the worrying figures actually offered some hope for homeowners.
He predicted the base rate would be cut to four per cent by the end of this year and would fall to as little as 3.5 per cent during next year.
This would match the historic low seen in the summer and autumn of 2003, after 9/11 and the dot.com crash.
He said it was "not too hard to imagine" rates going even lower if the credit crunch gets worse. Howard Archer, chief UK and European economist at Global Insight, said he expected the first cuts to come next week after the Bank's monetary committee meeting.
Lenders have said that growing uneconomic uncertainty and the credit crunch was forcing them to take fewer risks at the same time that the cost of wholesale borrowing on the money markets remained high. |
