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Interest rates may not fall further

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Legal & General Investment Management has warned interest rates may not come down as much or as quickly as has been recently forecast.

At the beginning of December the Bank of England decreased rates by 0.25% to 5.5%, and many industry experts have predicted more falls in 2008.

But James Carrick, investment strategist at Legal & General Investment Management, said that forecasts assuming growth in the world economy during 2008 ignored the potential for inflationary bust caused by rising food and energy prices, and the credit crunch.

He claimed the Monetary Policy Committee at the Bank of England would feel increasingly pressured to maintain rates at their current level, or at least not to cut them as quickly as had been previously expected.

However, Martin Ellis, chief economist at Halifax, said he still thought there would be a couple of interest rate cuts in 2008, bringing the Base Rate down to 5%. He said: “I think there will be another cut in February and one later in the year, and we cannot rule out further cuts if the economy slows more than expected. But there is a possibility inflationary pressure worldwide on oil and food could act as a constraint on the Bank of England, giving it less room for manoeuvre.”


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