Interest Rates: What will happen next?

But following the big rate cut by the US central banks, are the world's other central banks likely to follow suit?

BANK OF ENGLAND

UK interest rates have climbed five times since August 2006 and now stand at 5.75%.

And until recently, most bets were on the Bank upping rates again before the end of the year as it tried to keep inflation under control.

However turmoil in the markets, not least the crisis surrounding Northern Rock, has changed all that.

Now analysts agree that it is unlikely that rates will rise further, with many predicting a cut in interest rates, perhaps before the end of the year.

US FEDERAL RESERVE

The US central bank, the Fed, had been tipped to cut interest rates from 5.25% this month as it tried to stem the economic downturn caused by problems in the housing market and the effects of the credit crunch.

However few had expected that rates would fall by 50 basis points to 4.75%.

It is too early to say what the next direction in rates will be - with some cautioning that the dramatic cut has put inflation at risk of going out of control.

However in its bold move, the Fed has sent the message that while inflation is a concern, preventing a recession is a greater priority.

And it has signalled that, for the moment, it will be more concerned with the risks of recession than worries about inflation.

BANK OF JAPAN

After six years of keeping interest rates at zero in a bid to stimulate the economy, Japan's key rate has risen twice since July 2006 to now stand at 0.5%.

Governor Toshihiko Fukui is keen to raise the cost of borrowing - which he acknowledges is too low.

The next rate rise had been anticipated in August but uncertainties over the world economy resulted in that being put on hold.

Most analysts do not now expect a Japanese rate increase until December or early next year, though Mr Fukui insists that the Bank still has a policy of gradually boosting rates.

EUROPEAN CENTRAL BANK

The interest rate in the 13 nations which use the Euro is currently at 4%.

In a similar scenario to the Bank of Japan, the ECB had been widely expected to raise interest rates this summer to 4.25% to be more in line with other major Western economies - until the credit turmoil prompted a rethink and delay to the move.

The US sub-prime mortgage has seen eurozone interbank lending to almost seize up entirely - with most analysts now expecting rates to be kept on hold until the end of the year.

But all will depend on how badly the world economy is dented by the US slowdown.

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