Base rate may fall due to market turmoil

Posted: 14 Sep 2007 11:08:56 GMT

Bank of England governor Mervyn King has hinted that the base rate of interest may come down in light of the current financial crisis.

Bank of England governor Mervyn King has hinted that the base rate of interest may come down in light of the current financial crisis.

He said in a statement that the credit crunch may bring inflation down if it continues and this would lead to interest rates falling.

The latest inflation report from the Bank suggested that at least one more rate rise would be needed in order to bring inflation below the two per cent target but this could be revised if things continue as they are.

"Interest rates are a flexible tool and can be adjusted quickly when necessary," Mr King revealed.

"If, in the wake of a shock to the financial system, the terms on which the financial system extends credit to the private sector become less favourable, borrowing and overall demand would weaken. Other things being equal, that would lower the inflation outlook," he added.

Mr King did point out that strong evidence of a slowdown in the wider economy would be needed before any drop in rates.

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