How low could interest rates go?
Markets are predicting a cut for the first time since the credit crunch, with the move having implications for about 7m borrowers
Alexandra Goss and James Charles Published: 14 August 2011
Economists have revised their forecasts for interest rates in the past week (Richard Pohle)
Markets are pricing in a 30% chance that Bank rate could be cut to 0.25% by February after the past two weeks’ turmoil. It is the first time since the credit crunch that markets have priced in such a high probability of a cut from the current record
low of 0.5%.
The move has implications for about 7m borrowers with variable-rate mortgages. While the Bank of England said that, in practice, it would not reduce rates from their current levels, the move shows how far rate expectations have shifted this year and boosts the arguments against fixing.
Economists have dramatically revised their forecasts for interest rates in the past week after the Bank revised down its growth forecasts.
The markets do not now expect Bank rate to rise from 0.5% to 0.75% until 2013.
George Buckley, UK economist at Deutsche Bank, said: “A cut in interest rates is highly unlikely,