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USINESS
Page 32
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rents
Just before Christmas we saw the first glimmer of hope that interest rates might start to fall again after the incessant rises of 2007 when the Monetary Policy Committee (MPC) out rates by 0.25%. For the first time it was more worried by the possibility of a "sustajned economic slowdown" (no one likes to talk of 'recession') than by any risk of exceeding the government's 2% inflation target.
Many pundits are now predicting a pattern of rate falls through 2008; some suggest interest rates could fall to 4% by 2009. However this isn't at all certain. The global credit squeeze will continue to make money expensive, even between banks, and the Treasury is unlikely to abandon its tight rein on inflation.
However, if 2007 interest rates have succeeded in suppressing the housing market, bringing down inflation -and house prices fell for the fourth consecutive month in December the MPC might relax a little more.
The safest policy is to hope for the best... but prepare for high interest rates.