UK 'may need to cut interest rates'
The Bank of England could be forced to cut interest rates
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Thursday, 27, Sep 2007 01:45
The UK may need to cut interest rates in order to boost economic growth, a new report has warned.
In its latest annual survey of economic conditions in the UK, the Organisation for Economic Cooperation Development (OECD) claims that ongoing turmoil on the world's financial markets could see the country's economy slow in future months.
Before the current turbulence began the OECD, which represents the 33 most advanced industrial countries, had predicted that the UK economy would grow by 2.5 per cent in 2008.
However the Paris-based organisation warned today: "Although indicators of economic activity have been robust in 2007 to date, there is now a risk that growth will be weaker going forward, which could imply a need for interest rate reductions."
The OECD warned that the UK's housing market could be particularly at risk from recent economic developments.
"Looking ahead the interest rate increases over the last year, together with recent financial market volatility, are expected to slow the housing market," the organisation's report stresses.
The warning comes amid growing expectations that the Bank of England could opt to cut UK interest rates in future months, in a bid to prevent the global credit crunch impacting upon the wider economy.
In its latest rate decision the central bank voted to keep the benchmark cost of borrowing on hold at 5.75 per cent, following a series of previous increases, while the US Federal Reserve slashed interest rates in America in response to the financial turmoil.
Meanwhile the OECD has stressed that a slowing of economic growth in the UK could reduce profitability in the City, the country's financial base. It said that in addition the cooling of the economy would reduce tax revenues and lead to a subsequent rise in the UK's budget deficit, which the organisation warned was already high by international standards.
The warning comes ahead of the announcement of government spending plans for the next three years, with analysts predicting a sharp squeeze on public spending.