Investors are predicting interest rates will fall to 4.5% by the end of the year after the Bank of England yesterday announced a quarter-point rate cut, its second in nine weeks. Financial Times
The latest cut brought interest rates to 5.25%, half a point below their peak. But the rate cut made little impact on the FTSE 100. It closed 2.6% lower at 5,724.1 points.
The expectations of a gradual easing of UK rates were matched yesterday in Frankfurt, where a cut in eurozone interest rates in coming months became significantly more likely after the European Central Bank softened its stance on future reductions.
Jean-Claude Trichet, ECB president, hinted that the central bank would soon cut its growth forecasts and did nothing to correct financial market expectations of a quarter percentage point cut in borrowing costs in April, or earlier.
The Bank of England cited the deteriorating global growth outlook, disruption of global financial markets and difficulties in securing credit as reasons for the cut. But its statement gave equal prominence to fears that inflation would soon rise sharply and might stay high.