More cuts in store: Rates could go lower if economy worsens

MORE CUTS: The Bank of England has attempted to boost the economy with a £100bn scheme to force banks to pass on the low interest rates to households

Ben Broadbent –the Bank of England’s deputy governor - has revealed there could be a further interest rate cut this year if required.

His comments highlight the Bank of England's signal on Thursday that rates could go lower if the economy worsens.

On Thursday, the Bank cut interest rates from 0.5 per cent to 0.25 per cent- a record low which also marks the first cut since 2009.

Mr Broadbent confirmed there was a real prospect of another cut in rates this year.

He said the Bank had acted after a series of surveys since the referendum on most aspects of the economy, including employment, the housing market and business confidence, which had turned down markedly.

He added that in the past, these had been ‘reliable indicators of subsequent releases of official data’.

The Bank also attempted to boost the economy, with a £100bn scheme to force banks to pass on the low interest rate to households and businesses and the purchase of £60bn of UK government bonds and £10bn of corporate bonds.

These efforts have been criticised in some quarters, including from a former colleague on the Bank's interest rate-setting Monetary Policy Committee.

Mr Broadbent said: “I'm pretty confident it will have some effect... it is a substantial, coherent package... we have already seen mortgage rates fall.”

The Bank predicted that house prices would fall over the next year, ending years of strong growth. Prices fell in July, according to the latest Halifax figures, out this morning.

The average value of a home fell 1 per cent to £214,678 last month. The drop was the third this year and mostly offset June’s 1.2 per cent increase.

However figures for a single month can be erratic but the quarterly trend shows growth has slowed from earlier in the year.

UK economic optimism soars

Optimism about Britain's economy has reached its highest level since 1997 thanks to an unexpectedly strong recovery, boosting Prime Minister David Cameron's economic credentials ahead of a 2015 election, a poll showed on Thursday.

The poll, by Ipsos Mori, found one in four people trusted Cameron more than other political party leaders to manage the £1.54trillion economy, the sixth largest in the world.

By contrast, only 20 percent of those polled said they trusted Ed Miliband, the leader of the opposition Labour party, to look after the economy.

On the issue of economic trust, Ipsos Mori said Cameron had increased his lead over Miliband to 22 percentage points from 14 points in May last year.

Thursday's poll found half of the 1,012 respondents believed the state of the economy would improve in the next year, while 24 percent thought it would get worse, giving a net economic optimism index score of +26, the highest since 1997.

Britain's economy has staged an unexpectedly strong recovery after a long period of stagnation, with official data last month showing it grew last year at its fastest rate since the 2007 financial crisis.

The recovery has been a boom for Britain's two-party coalition government, though Cameron's Conservatives still lag behind Labour by up to seven percentage points in polls of overall voting intentions ahead of a national election in 2015.