Bank report predicts rates fall

The economy is being affected by many different factors, says Chris Wright

A report predicts that the UK's interest rates will drop as low as 5.5% by the end of 1999.

The quarterly economics review from the economics director of Barclays Bank says the next big rates move will be downwards as the economy slows.

Chris Wright predicts that the tightness of the labour market and the prospect of wage rises pushing up inflation mean it is too early to be certain that rates - currently at 7.25% - have peaked.

Achieving the so-called "soft landing" - when the economy slows gently without slipping into recession - will be easier said than done, he warns.

"This is particularly true when, as is now the case, different sectors of the economy are being affected in very different ways by a long list of shocks and policy changes, including the impact of sterling's strength, the crisis in Asia and the sharp fall in oil prices.

"A key concern is that the economy may be weakening more sharply than generally expected and certainly more sharply than the policy makers were projecting a few months ago."

He predicts economic growth, measured by GDP, will slow from its current level of 2.9% to 2.2% for 1998 and 1.3% for 1999.

Over the same period, he expects unemployment to rise from 1.4m to 1.6m.