Loading ...Hopes For New Interest Rate Cut As Inflation Falls Faster Than It Has For The Last 16 Years
Welcome back!
The major downfall in inflation for 16 years is likely to clear a path for the Bank of England to reduce their interest rates to just 2 per cent by Christmas. Official figures reveal inflation has dropped at its fastest pace since 1992, which was down 0.7 percentage points. According to the Office for National Statistics, between September and October, it declined ‘like a stone’ from 5.2 per cent to 4.5 per cent.
In April 1992, when Britain was last caught up in downturn, the figure dropped 2.4 percentage points.
Experts stated that the consumer prices index of inflation will continue to decline and could fall into negative territory next year for a year and a half. However, this comes after 18 months of increasing inflation, which has been a nightmare for cash-strapped families and pensioners.
Ben Read, managing economist at the Centre for Business and Economics Research stated that inflation is ‘ yesterday’s story’. Meanwhile, interest rates are at 3 per cent, which was at their lowest level since 1955, but the Bank is likely to lower them further to begin the economy in a better way.
The Bank has been greatly criticized for failing to act quicker. Critics stated that the present concerned pace of rate slashes could prove to be too little, too late.
Many of the 11.7million who have a mortgage will be expecting to see their monthly repayments downfall, but the majority will not save a penny.
It has been reported that about half of loans are at a fixed rate. Others, which are supposed to ‘track’ the Bank’s base rate, may contain a clause saying the loan will not diminish below 3 per cent.
Economists agree that the next move for interest rates will be drop, but do not agree on the size of the reduction and exactly when it will takes place.
Some expected a decline of one point, which means rates will down from 5 per cent in September to 2 per cent just three months later. Others point out that a half-point reduction is more likely next month. The Bank’s next decision will be exposed on December 4.
According to Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, ‘Declining inflation leaves the door open for another big interest rate slash in December.
