Interest rates in Britain could be slashed to almost zero as the eurozone plunges even closer towards catastrophe, economists warned today.
Capital Economics has pencilled in the current 0.5 per cent rate being halved in November and then possibly falling further, making mortgages cheaper for millions of people.
The prediction came amid more dire news from the eurozone, which even saw Germany put on negative outlook by rating agency Moody’s. It raised the prospect of Europe’s powerhouse economy losing its AAA credit rating as Berlin has to prop up sickly southern EU countries, including Spain and Italy. Holland and Luxembourg were also put on negative outlook.
The German government swiftly played down the risks highlighted by Moody’s, insisting the country remained “in a very solid economic and financial situation”.
Despite positive news from China on manufacturing, stock markets across Europe dipped early this morning amid the anxiety over the eurozone’s fate, with particular concerns over Spain’s ability to borrow. It is close to being shut out of financial markets as its borrowing costs soar. Investors were today demanding an eye-watering 7.55 per cent interest rate on its benchmark
10-year bond, a level that could eventually force Spain into a bailout.
German finance minister Wolfgang Schäuble was today meeting Spain’s economy minister Luis de Guindos in Berlin to discuss the crisis.
There is also a growing belief that Greece could be forced out of the euro as it delays imposing austerity measures to slash its debts. International Monetary Fund, European Central Bank and European Commission inspectors were arriving in Athens today for talks on progress. They must decide whether Greece should get
£25 billion— the last tranche of a £102 billion aid package agreed in March.
The Bank of England has been reluctant to cut interest rates in Britain further because of doubts over how much this would boost the economy and concerns it could hit savers and the financial sector.
