Economy will recover

Sep 19 2008 by Peter McCusker, The Journal

INTEREST rates could well be down to 3.5% and inflation down to less that 2% by this time next year, senior North East business figures were told by one of the country’s leading economists last night.

And Roger Bootle told guests at the Deloitte North East Business Dinner in Jesmond that the credit crunch will continue for some time, with house prices set to fall by a further 25-30% before they hit the bottom.

Mr Bootle, managing director of Capital Economics and economic adviser to Deloitte, said he believed the Bank of England Monetary Policy Committee would cut interest rates and they could well be down to 3.5% by the end of next year.

Speaking on the crisis gripping the financial markets, he said that bank finances will be tight for some time to come and it was incumbent on the Government to continue borrowing to ensure there was enough liquidity in the market.

He went on to say the Government’s decision to nationalise Northern Rock was the beginning of a process that is continuing and that the Rock situation could have been handled differently, but would not elaborate when pressed by The Journal.