UK Interest rates could drop to 4% next year

The Bank of England base rate could eventually drop to around 4% by the end of 2009.

Although the current focus for the Monetary Policy Committee (MPC) is on keeping inflation in check which is proving difficult and means that there is unlikely to be any downward movements in interest rates in the short term.

However there is likely to be some relief for hard pressed homeowners in the longer term but we should not expect to see any dramatic cuts, such as those carried out by the Federal Reserve in the US recently.

With a period of muted economic activity at the moment this will eventually dilute underlying inflationary pressures and lead the Bank of England to cut interest rates further than the current benchmark of 5%.

We believe rates could eventually fall as low as 4% in 2009 but it is likely to be a gradual process over a period of 18 months.

For this reason we believe that we are unlikely to see an interest rate cut this month.

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