Although the US government’s rescue of crucial financial institutions Freddie Mac and Fannie Mae will alleviate pressure on global markets, the UK should still be wary, according to an expert.
Justine Fearns from investment firm AWD Chase de Vere claimed the US announcement was met with a “euphoric market reaction”, but warned that the crisis is not over yet.
“If next week’s UK unemployment figures follow the US rise (up to 6.1 per cent in August) the Bank of England is likely to come under pressure to reduce interest rates,” she commented.
She predicted that this may lead to stresses in the current financial and political arrangements.
However, a reduction in interest rates could lower the cost of borrowing and help to alleviate debt.
Earlier this month the Bank’s monetary policy committee voted the keep the interest rate at five per cent – the last cut was made in April when it was lowered by 0.25 percentage points.
By Jamie Price