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Interest Rate Cut 'on the cards'

 

The Bank of England is expected to cut interest rates for the first time in more than seven years later as the economy falters in the wake of the Brexit vote.

Economists predict the Monetary Policy Committee (MPC) will vote to reduce the base rate to a historical low of 0.25% in a bid to see off the threat of recession.

:: Cut In Interest Rates A 'Foregone Conclusion'

It would be the first cut since March 2009 when the Bank slashed rates to the then all-time emergency low of 0.5% at the height of the financial crisis.

The move would be welcomed by borrowers but spell further misery for long-suffering savers.

After the Brexit vote in June, Bank governor Mark Carney indicated rates would come down in July or August.

Gross domestic product (GDP) figures last week estimated a better-than-expected rise of 0.6% in the second quarter.

:: More People Keeping Cash Outside Banks

But this is expected to have gone into reverse since the UK voted to leave the European Union.

Purchasing managers' index (PMI) surveys on the three major sectors of the economy pointed to a record fall in activity last month and raised fears of a recession.

The readings signalled a shock contraction in the services sector for the first time since the end of 2012 and the biggest monthly fall in activity on record.

The all-sector PMI suggested a 0.4% fall in GDP in the third quarter.

Markit chief economist Chris Williamson warned the result "undoubtedly" increased the risk of a mild recession - defined as two successive quarters of falling GDP.

A report from the National Institute of Economic and Social Research (NIESR) also cautioned that there was a 50/50 chance of a recession over the next 18 months.

Jack Meaning, a research fellow at NIESR, said the Bank needs to use a "sledgehammer" to offset any downturn in the economy.

Mr Carney warned in May a Brexit vote could trigger a recession and has since said many of the risks previously flagged up have begun to "crystallise".

Financial markets have been surprisingly resilient but the pound has plunged in value and consumer confidence has fallen sharply.

In addition, there have been signs of strain in commercial and residential property markets.

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