Interest rates should be cut immediately to 1.5% says PricewaterhouseCoopers LLP

Published at 16:03 PM on 03 December 2008

The Bank of England Monetary Policy Committee (MPC) should cut interest rates by 150 basis points to 1.5% at its meeting this week, according to economists at PricewaterhouseCoopers LLP (PwC).

Updated PwC projections suggest that, even with this further interest rate cut and an estimated net boost of around 0.3% of GDP from the fiscal stimulus announced in the Pre-Budget Report last week, the UK economy is set to shrink by around 1.3% in 2009, the worst performance of any G7 economy next year. Furthermore, risks to this projection remain weighted to the downside.

John Hawksworth, head of macroeconomics, PricewaterhouseCoopers LLP, commented:

“This is no time for half measures. The November Inflation Report made clear that interest rates need to fall further to avoid inflation significantly undershooting its 2% target rate in the medium-term. We see no reason for the MPC to delay making a further one and a half percentage point cut in base rates in order to mitigate the risks of the recession turning into a full-blown depression.

“Lower interest rates are necessary but not sufficient to avert a downward spiral into deflation. Banks remain focused on preserving capital and liquidity while the government is keen to encourage responsible lending at reasonable levels. It is essential for the economy that where banks are scaling back their lending, they do so in an orderly fashion.”

ENDS



For more information contact:

Natasha. Davies
Tax Senior PR manager, PricewaterhouseCoopers LLP 
Tel:020 7212 3343 
Mobile:07709 019 290 
 

John Hawksworth
Head of Macroeconomics, PricewaterhouseCoopers LLP 
Tel:020 7213 1650 

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