Will interest rates fall here too?

Federal Reserve chairman Ben Bernanke has gifted the markets a 0.5% cut in interest rates. But is the world's other major debt-soaked economy with a housing market under pressure also due for rate relief?

Is the world's other major debt-soaked economy with a housing market under pressure also due for rate relief? The Fed's move, along with the run on Northern Rock (see pages 20 and 24), which petered out mid-week, has boosted expectations that the Bank of England will soon lower rates. And September's drop in annual consumer price inflation to 1.8%, the lowest since March last year, appears to give the Bank some leeway.

But not all that much. A further fall in energy inflation was the key reason for the decline, but as Capital Economics points out, unless record oil prices fall soon, energy inflation will pick up sharply over the next few months; higher petrol prices alone could add almost 0.5% to overall inflation. The Retail Price Index, which includes mortgage costs and is used as a basis for pay settlements, is back up to 4.1%, which could fuel concern over the knock-on effects on wages.

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