We doubt that the US bailout of the Government Sponsored Enterprises Fannie Mae and Freddie Mac marks the end of the financial crisis. Indeed, the rebound in global equities has been short-lived and banks appear to have become even less willing to lend to each other. Perhaps the more significant development over the last month was the further fall in global break-even inflation rates. Such an easing in the markets’ inflation concerns will go some way to allowing policymakers to turn their attention towards supporting activity. We continue to think that the MPC will cut UK interest rates again before the end of the year and eventually to at least 3.5%.
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