Capital Economics tips rates to fall after GDP shrinks by 0.7%

Capital Economics expects the Bank of England to cut the UK's base rate from 0.5% in an effort to stimulate growth, after last week's GDP figure showed the economy is shrinking faster than feared.

The Office for National Statistics (ONS) revealed the UK economy contracted by 0.7% in the second quarter, far worse than analysts’ expectations of a 0.2% decline. Capital Economics’ chief UK economist Vicky Redwood said the fall in GDP, coupled with the recent sharp pullback in inflation, will likely push the Bank of England’s Monetary Policy Committee (MPC) to return to more traditional methods of stimulating growth. “The MPC could do more QE or cut rates further and we think they will cut rates by a quarter point, or even reduce them to 0.1%,” she said. While the MPC has been c...