The historic 150 basis point cut in interest rates in November shows that the MPC is facing up to the seriousness of the situation. And it is encouraging that three month LIBOR has fallen sharply in response. But much more work needs to be done. We now think that GDP will fall by around 1.5% next year and a further 1% in 2010, making this recession worse than that seen in the early 1990s. And with inflation fears giving way to deflation fears, we think that the MPC will continue to cut interest rates aggressively, taking them down to at least 1%. This suggests that the recent rally in short bonds and the latest falls in market interest rate expectations have further to go.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services