Interest rates to fall this week

UNITED KINGDOM interest rates are likely to fall this week in response to the growing financial crisis in world markets, the Governor of the Bank of England, Eddie George, indicated yesterday.

Speaking after the meeting of the Group of Seven world's richest nations in Washington, Mr George said interest rates "need to be less tight everywhere in the world".

The Bank's Monetary Policy Committee meets on Wednesday and Thursday to decide whether to cut rates, with some commentators calling for a reduction of up to one percentage point. Mr George said that the worsening international situation would have a bearing on the Bank's rate decision.

Comments from the Governor about "serious weaknesses" in the global economy follow remarks made by the Chancellor, Gordon Brown, signalling an expectation of a cut in UK interest rates. In addition, a statement from the G7 appeared to hint at a forthcoming reduction in UK interest rates.

Writing in The Independent today Gavyn Davies, chief economist at Goldman Sachs, and a former adviser to the Labour Party, called for an immediate 1 per cent reduction in UK rates, reflecting a growing City consensus for an interest rate cut.

Speaking after the G7 summit, Mr George said: "We [the Bank of England] have been taking account of the international situation. It's going to have a bearing on the decision. The Chancellor has emphasised quite rightly that in the global economy there is a serious weakness."

Meanwhile, the Chancellor acknowledged that his official forecast of 1999 UK economic growth might have to be downgraded as the market turmoil begins to damage the real domestic economy.

Mr Brown said that every economy was going to be affected by the financial crisis.