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Interest rates will fall again in early 2009

Interest rates will fall again in the first half of the next year and could go as low as zero, according to a leading economic forecaster.

Professor Doug McWilliams, chief executive of the Centre for Economics and Business Research, told Construction News last night: “We have said they should go to 2 per cent next year but it can go lower than that. I wouldn’t rule out zero if that is what it takes – there is enough uncertainty there.

“They now see that avoiding recession is the prime aim and that they will cut interest rates by as much as they need to to achieve that.”

Professor McWilliams, who advises a number of construction companies and is the former chief executive of the CBI, warned that the effect of the interest rate cut would be relatively minor, and reduced by the Bank of England not making a bigger cut at the beginning of last month.

“We live in a world where confidence is everything and there is a danger that we have lost some of the psychological benefits by moving late. It looks like a panic measure rather than moving decisively.”

He said: “It would be foolish to expect a major effect in the short term. You might see a little bit of extra demand in the housing market and allow banks to be a bit more relaxed about mortgage lending. But I don’t think you will see banks changing their lending behaviour [to small businesses] – their lending decisions are based on the fact that the prospects for some small businesses is not good and that is not changed by a lower interest rate.”

Related News:

Bank of England slashes interest rates to 3pc