A City broker predicted today that UK interest rates could fall to zero during the next six months.

Rupert Lee-Browne, chief executive of foreign exchange broker Caxton FX, said he expects the Bank of England’s Monetary Policy Committee to cut Bank rate from 3 per cent to 2 per cent at tomorrow’s meeting.

But he predicted further rate cuts were likely in coming months, which could bring rates down to zero.

Mr Lee-Browne said: “Rates could even hit 1 per cent in December as the Bank of England continues to take action against the back drop of worsening economic sentiment. Rates could even fall further than this in 2009.

“There is a historical precedent here. When Japan faced a banking crisis in 1989, it was followed by deflation and rates were eventually cut to 0 per cent in order to reinflate the economy. Interest rates in Japan currently stand at 0.3 per cent.”

His comments follow further interest rate reductions this week by the Reserve Bank of Australia, which reduced the cost of borrowing from 5.25 per cent to 4.25 per cent, while New Zealand’s central bank is also expected to reduce rates again tomorrow.

The European Central Bank (ECB) is also widely expected to reduce interest rates from 3.25 per cent to 2.75 per cent tomorrow.

South Korea’s Central Bank was also due to hold an emergency meeting today to discuss further support for financial markets, while Sweden’s central bank has brought forward its regular policy-setting meeting to today — sparking speculation it, too, plans a major reduction.

Its decision will not be made public until tomorrow — to coincide with the Bank of England and ECB announcements — but Swedish rates are expected to fall from 3.75 per cent to 3 per cent.

The Swedish crown fell against the euro this morning in anticipation of the reduction.

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