Defaqto: Interest rates could be cut to 1%

Interest rates could fall to at least one per cent by the end of 2009, analyst group Defaqto has forecast.

Economist at the group Michael Baxter has refused to rule out the possibility of inflation continuing to fall and suggests it will probably go negative "at some stage next year".

As a result, he forecasts that interest rates are likely to slip to "at least one per cent" by the end of 2009.

Mr Baxter believes there are "good reasons" to expect deflation to come knocking.

"This is what happened in Japan during the last decade and it also happened during the 1930s," he said.

Last month, the Bank of England Monetary Policy Committee cut interest rates by 1.5 percentage points to three per cent. A month previously it had reduced the rate by 0.5 percentage points to 4.5 per cent.