UK Bank Rate and Iinflation Could Drop to 2%

by Jordan Yerman | October 19, 2008 at 06:35 am

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As there is no single magic pill for the economic woes affecting European markets, Britain could see its bank rate drop to as low as 2% in the coming year, which would be an all-time low.

While inflation would drop off, interest rates on savings accounts would also drop, in some cases dramatically.

Economist Roger Bootle predicts a fall to 3.5% by Christmas and 2.5% or 2% by spring and lower if "things get really bad".

He also says that inflation will "plummet" next year and could even fall to zero or below.

"And we surely all believe recession is hitting the UK economy - that will also tend to reduce prices, so those together will bring inflation tumbling down.

"It is possible that the downturn will be even more serious and it wouldn't take much to push it below the zero line."

If that happened it would be the first time the UK had experienced deflation since the end of the Great Depression in 1933.