Interest rates may have to be slashed to zero as Britain battles to avoid a full-blown depression, one of the country’s leading economists warns today.

The extraordinary claim from Charles Goodhart, a founding member of the Bank of England’s Monetary Policy Committee, came as Gordon Brown signalled that he wants to see further, aggressive cuts in the cost of borrowing.

Mr Goodhart, professor emeritus of banking and finance at the London School of Economics and a member of the MPC between 1997 and 2000, tells Channel 4′s Dispatches programme: ‘Interest rates will go down from now, by how far and how fast nobody knows.

(Article continues below)

‘They could go to zero. They went to zero in Japan in the 1990s when the Japanese had a recession or depression which went on for a long time and was quite severe.’

Such a drastic move here would bring rates, currently 4.5 per cent, to their lowest level since the Bank of England was founded in 1694.

• A d v e r t i s e m e n t

Despite the Bank’s independence in setting rates, Mr Brown said yesterday: ‘Inflation is coming down over the next few months and that will mean that it gives scope to the monetary authorities, including the Bank of England, round the world, to make a decision about interest rates.’

However, many experts warn that a rush to cut rates is ‘too little, too late’ because Britain is already in what is predicted to be a long recession.

Mr Brown will today insist he is right to try to borrow his way out of the downturn despite growing warnings from economists that he could bankrupt the country.

The Prime Minister will say he will allow public borrowing to spiral still further -
hinting that he may even seek to use the money for tax cuts for workers, businesses and homeowners.

Full article here