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Drop in interest rates predicted

The Bank of England has warned of a number of risks to the UK economy next year, in comments that analysts have said point to lower interest rates.

In its quarterly Inflation Report, the Bank forecast the economy would slow in 2008 and inflation would accelerate.

However, it added that even if interest rates fell by half a percentage point, it would still hit inflation targets.

Analysts said that this signals that interest rates should dip next year from their current level of 5.75%.

Nevertheless, the Bank said that there was a lot of uncertainty over the outlook for the economy.

It noted there were some signs of a softening in house prices, but said that the link between the housing market and consumer spending was a complex one.

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