Interest rates heading towards zero, says economist

A senior economist has said the interest rate is heading towards zero due to the "full-on recession" happening at the moment.

Charles Davis from the Centre for Economics and Business Research (CEBR) suggested that while it was not clear whether the base rate would fall below 0.25 per cent, "it could well go down to as low as they are willing to go".

He added that regardless of the level it drops to, it is likely to stay there for a long time - at least until the end of 2009.

One of the reasons for this is the threat of deflationary pressures, Mr Davis explained.

Deflation - the term used to describe a persistent fall in prices for goods and services to an inflationary rate of below zero - would be a "real, major risk" for the UK, he said.

If the base rate falls, this can affect consumers with money stored in savings accounts as the amount of interest they earn on the sum may be less.

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