Interest rates could be slashed to zero for the first time in UK history as the Bank of England battles the deepening recession.
Governor Mervyn King said he is ready to reduce rates to ‘whatever level is necessary’ to counter the economic storm.
He warned Britain’s economy could shrink by at least two per cent during 2009, pushing inflation into negative territory for the first time in almost half a century.
A worst case scenario could see a slump of over three per cent in gross domestic product (GDP) - the biggest year-on-year fall since the beginning of 1981.
The Bank confirmed the UK has already entered its first recession since the early 1990s, blaming the slump in lending and chaos on financial markets.
In its report, the Bank said national output will fall at an annual pace of around two per cent by the middle of 2009.
Inflation will drop to one per cent, and alarmingly the retail prices index may well tumble into negative territory for the first time since March 19
Employment is also set to fall ‘significantly’ for the next two years, driving down incomes, the Bank warned in the wake of a surge in jobless figures.
Separately, more than a million people are now struggling with their mortgages because of the credit crunch, its quarterly inflation report showed.
Emphasis added by me.
Do you think 0% interest on market would work?
It didn't work in Japan! It's known as the "lost decade" over there. And in its wake, Japan is not the same. Lifetime employment: gone. Domestic manufacturing: China. Homelessness: accepted.