Interest rates ‘could be as low as 1%’

20 October 2008

Leading economists have said that the Bank of England may need to cut the base rate to 2% or even as low as 1% “within months”, as it aims to protect the economy from a serious economic crisis, according to The Telegraph.

The move would bring the base rate, which currently stands at 4.5%, down to its lowest level since the Bank was founded in 1694.

Roger Bootle, managing director of Capital Economics and a former Treasury adviser, said: “It is critical to get rates lower. (…) They need to be pretty bold. The lowest rates have ever gone is two per cent. They could easily go lower than that now.”

Alan Clarke of BNP Paribas, said: “One per cent or lower is not impossible. The important trigger is the labour market: unemployment over say 8 per cent would be a disaster.”

A spokesperson for Think Money said: “Bank liquidity, and therefore availability of loans, is key to the health of the economy, and the Bank of England may well drop their base rate to unprecedented levels to help maintain economic stability.

“The loans market would benefit greatly from such a significant reduction in rates – assuming lenders brought their own interest rates down accordingly. However, it’s important to remember that savings could actually begin to lose value, due to inflation rising faster than the value of consumers’ deposits.”

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Tags: interest rates, rates, mortgage rates, loan rates, base rate

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