British interest rates 'set to follow' U.S. to ZERO per cent all-time low

Published 17th Dec 2008

The U.S. Federal Reserve shocked the world last night by slashing its benchmark interest rate close to zero and declaring it would pump out vast amounts of cash to businesses and consumers in a bid to beat recession.

The central bank set the official rate to between zero and 0.25 per cent. Experts say the move could be copied within months by the Bank of England.

While this could help stimulate the British economy, it would be dire news for the nation's savers - who outnumber borrowers by seven to one.

Experts - who had been expected a 0.5 per cent cut - were taken aback by the drastic 0.75 per cent cut.

Mr Bernanke and his colleagues pledged to use 'all available tools' as they struggle to contain the worst financial crisis since the 1930s.

Interest rates are likely to remain at historic lows for some time to come, Mr Bernanke added, with the Fed taking steps to pump new money into the economy.

These moves could put billions of welcome and unexpected dollars into the pockets of struggling US consumers at a time when a recession has hit their appetite for spending.

The possibility of zero per cent interest rates in Britain looked even more likely yesterday after official figures revealed another plunge in inflation.

The Office for National Statistics said it fell from 5.2 per cent in September to 4.1 per cent last month - the biggest two-month drop since the last recession 16 years ago.

This is largely being driven by falling fuel prices, with motorists finally getting a cheaper deal at the pumps.

Jonathan Loynes, chief economist at the Capital Economics consultancy, said: 'It seems clear that the inflation outlook presents no obstacle to further cuts in interest rates.'

Yesterday Mervyn King, the Bank of England's governor, said it was 'quite possible'that inflation will fall below one per cent next year.

Source: ' Daily Mail '

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