Interest rates to fall twice before end of year

Interest rates will fall twice before the end of the year, according to a prediction by BDO Hoy Stayward.

The latest BSO Business Trends Report claims inflationary pressures on the UK economy have eased enough to allow the Bank of England’s monetary policy committee to lower the base rate by 0.25% when it meets on Thursday with a further cut still to come in early autumn.

While a cut in interest rates this months in wiedely aniticipated and further cut in rates is less certain. But the report claims there has been a sharp decline in consumer spending and the housing market leading to the BDO output index taking its most dramatic fall since April 2001. The BDO inflation index also declined steeply in July indicating that inflation on the consumer price index will be in line with the Bank of England’s 2% target for the fourth quarter of 2005.

BDO says predictions for gross domestic product growth two quarters ahead fell from 102.3 in April to 100.5 in July implying annualised economic growth of 2.8% in the first quarter of 2006. Meanwhile inflations predictions also fell dramatically from 104.2 in April to 99.5 in July despite oil prices hitting a peak of $60 a barrel and sterling declining against the dollar in recent months.

Peter Hemington, partner at BDO Stoy Hayward, says: "The fall in inflationary expectations is a helpful boost to an economy that has been struggling with reduced consumer demand. We would like to see interest rates fall this month."

If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Matthew West on 020 7484 9893 or email matthew.west@incisivemedia.com.