Further rate cuts expected

Interest rates could fall to an all-time record low of 2 per cent when the Bank of England decision is announced later. Expectations for a full 1 per cent cut are growing as the economy slides into recession. The Bank's Monetary Policy Committee (MPC) will announce its decision at midday after two days of deliberations amid worsening economic news. The rate-setters are almost certain to deliver a cut of at least another 0.5 per cent but experts said the case had been reinforced for a 1 per cent reduction despite last week's Pre-Budget Report stimulus package. Philip Shaw, economist at Investec Securities, said: "We had previously judged that a 0.5 per cent easing, together with the substantial tax cuts in last week's Pre-Budget Report, would bring the MPC's inflation forecasts into line with the 2 per cent target in the medium-term. But this week's economic news has been very poor." He added there was even a "real chance" of a repeat of last month's 1.5 per cent cut, although he pointed out this would leave the Bank with little ammunition to help the economy further. The MPC surprised markets last month by slashing the base rate by 1.5 per cent to 3 per cent. John Cridland, CBI deputy director-general, said: "The CBI believes that the Bank will need to cut interest rates by 1.5 per cent during the winter months. "What is critical for business and consumers alike is that the reductions are passed on. The cut will need to be at least half a point but more important than the size of the cut will be its effectiveness."

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ITN | December 4, 2008

Tags:. .prebudget. .cbi. .directorgeneral. .investec. .ammunition