It is predicted by UK financial markets that the base rate of interest could be cut by the Bank of England to 0.25% by the end of the year. The prediction is the first of its kind that hints at the value of less than 0.5%, which is where the base rate has been set since March 2009.
SONIA (Sterling Overnight Interbank Average) and the general financial market had originally forecast a rise in the base rate of interest to 0.75% in 2014 but this has not been stated to be unlikely until the beginning of 2017.
The deepening Eurozone crisis weakening chances of a rate rise and the surprise fall in the UK’s rate of inflation have acted as a catalyst for a huge shift in the interest rate predictions.
In a speech on Thursday by Sir Mervyn King, he expressed that further quantitative easing is now likely to be recommended by the monetary policy committee. While lots of analysts fully expect the injection of cash from the Bank of England not everyone is convinced about the drop in interest rates.
Howard Archer, an economist at HIS global Insight said: ‘We remain doubtful that the Bank of England will take interest rates below 0.50% given doubts within the MPC that even lower interest rates would have a net beneficial impact,’
‘In particular, the Bank is concerned that even lower interest rates would hit banks’ profit margins and adversely impact on their willingness to lend.
‘In addition, the Bank of England doubts that taking interest rates below 0.50% would significantly help many borrowers.’