Interest rate 'to hit all-time low'
Interest rates could fall to an all-time low to drag the UK out of a deep recession, the Bank of England's latest forecasts are set to show.
Its latest quarterly estimates for growth and inflation - the first since the collapse of Lehman Brothers triggered a global crisis in September - are likely to paint a bleak picture of the UK's economic prospects.
The Bank slashed rates by 1.5% to 3% last week - their lowest level since 1955 - because of a "substantial risk" of undershooting its 2% inflation target as recession looms.
Many experts now predict borrowing costs to fall below the all-time low of 2% - last seen in 1951 - as the Bank battles against recession.
The Bank's inflation measure, the Consumer Prices Index, currently stands at 5.2% - more than double the official 2% target.
But this is set to fall rapidly next year as oil, energy and food costs recede and a recession impacts on demand.
IHS Global Insight economist Howard Archer said: "We expect the forecasts to show that CPI is likely to significantly undershoot its 2% target on a two-year horizon at current interest rate levels, thereby leaving the door wide open for further marked reductions in interest rates over the coming months."
Mr Archer predicts rates falling to 1.5% by the middle of next year with CPI slowing to 0.5% - the lowest for eight years.
The latest projections are set to show how sharply prospects for the UK economy have declined in the past three months.
The Bank's August forecast - which predicted flat growth next year - was gloomy enough, but the worst crisis to hit the banking sector for more than a century is now sending the UK headlong into recession.
