Following in the wake of other major economies (US Federal reserve set interest rates at between 0 and 0.25%, Japan set rates at a mere 0.1%), the Bank of England looks set to lower the base rate to 1% or even less. In the rest of Europe, rates are set at 2% and due for another drop next month.
All around the world, economies are setting their lending rate at unprecedented low levels in the hope that the economy will be stimulated as a result.
The threat of increasing the money supply (printing money) is still a possibility, but would have a potentially devastating effect on the exchange rate as the perceived value of sterling would plummet. That might sound like a great benefit for exporters, but when you consider the lack of a manufacturing base, the effect on our imports will be more significant.
The news of the drop in base rate will be welcomed by those who have a tracker mortgage that will follow the base rate.
Related posts:
UK bank rate drops to 1%
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