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Rate cuts 'will be implemented soon by Bank'

Interest rates might be reduced to 3.5 per cent over the months to come, Capital Economics suggested today.According to the experts, the 1.5 per cent cut to the Bank of England's current base rate would come when price rises moderate.Currently, inflation is standing at a 16-year high of 4.4 per cent.As well as being 2.4 per cent above the Bank's own target, it is also a major block on rate cutting - as lowering interest rates generally has an inflationary effect.Jonathan Loynes, chief European economist at Capital Economics, explained: "With inflation likely to rise further over the next few months I think they probably won't cut rates for a little while, [but] we have [predicted] the first cut coming through in the fourth quarter, possibly November, and we then think rates will fall quite sharply next year; perhaps to about three and a half per cent."He added: "Given the state of the economy, once these concerns about inflation are finally out the way then they will want to bring interest rates down pretty quickly in order to limit the severity of the economic downturn."

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