Prospect of Lower Interest Rates as Unemployment Soars

After falling for 15 years, unemployment has increased by 70,000 during 2008. A report published today shows the amount of permanent jobs available has fallen to its lowest level since 2001. Many also predict a rapid rise in unemployment towards 2 million - a figure last seen during the 1991 recession.

This year, David Blanchflower has often been a lone member of the MPC calling for a cut in interest rates. He now feels the string of depressing news vindicates his call for lower interest rates.

David Blanchflower says, in an interview with Reuters that “We are going to see much more dramatic drops in output,”

Another factor that increases the likelyhood of an interest rate cut is the fall in oil prices. After reaching $150 in the middle of summer, oil prices have slumped to $105 as disruptions to supply have failed to materialise. Lower oil prices will help reduce the cost push inflation which caused the MPC such a headache. With a fall in inflation in 2009. it opens up the way for a cut in interest rates.

With house prices continuing to fall, lower interest rates would certainly be welcomed in that market as well.