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Recession Watch : Interest rates

The question of interest rates and the potential impact they have on difficult economic times has been somewhat blurred in the UK over the last 12 months. Due to the unique situation economies around the world find themselves in we have seen significant reductions in the vast majority of base rates across the globe to levels never seen before. UK rates have quickly fallen from 5% down to 0.5% and until this week there had been suggestions that rates could fall as low as 0%. However, recent reports are suggesting that the slide in the UK economy could be slowing and a potential recovery may be just around the corner.

Historically when base rates "bottom out" this can in many cases signal the end, or at least a slowing, of a fall in the economy. Whether we can glean the same information from the current UK base rate cycle is very much debatable although once we start to see interest rates creep higher this would be a definite sign that the economy is turning and the end of the recession is in sight.

Again, the situation in the UK is slightly different to other economies around the world because of the general election due next year which without doubt will taint political decisions between now and then.

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