Major rate cut would be bad news, says expert

An economist has said the Bank of England would make a major mistake if it were to cut interest rates drastically in the way the US Federal Reserve has just done.

Earlier this week the American central bank announced a 0.75 per cent cut in the federal funds rate.

Writing in the Yorkshire post, the editorial and programme director at the Institute of Economic Affairs Professor Philip Booth said: "Arguably, slack monetary policy and low interest rates led to over-inflated asset prices, higher house prices, the mis-pricing of credit and the credit binge."

He said rate cuts undertaken while inflationary pressure was rising would "prolong the misery".

In the absence of major cuts in the base rate there may be only limited reductions in the cost of mortgage, making the self build option potentially more financially attractive.

This week the Bank of England's monetary policy committee minutes were published, showing that the committee had voted eight to one against a rate cut because inflationary pressures had "worsened markedly".


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