Base rate set to fall sharply

The base rate of interest will plunge to 4.75 per cent by the end of 2008, according to one expert.

Howard Archer from Global Insight believes that the minutes from the latest meeting of the Bank of England's Monetary Policy Committee (MPC meeting hint towards more interest rate cuts.

The minutes reveal that all nine MPC members voted in favour of December's 0.25 percentage point cut, bringing the rate down from 5.75 per cent to 5.5 per cent.

It was the first cut to be announced since August 2005 and Mr Archer is confident that there is more to come very soon.

"Another interest rate cut in January is possible if the data and survey evidence is very weak," said the economist.

"However, given recent rising inflation expectations, we suspect the MPC may prefer to wait until February to make sure that pay moderation is continuing in the early 2008 wage rounds.

"We expect interest rates to be cut by a further 25 basis points in both February (to 5.25 per cent) and May (to five per cent). Furthermore, we expect interest rates to be trimmed further to 4.75 per cent in the second half of 2008," added Mr Archer.

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