Recently, I received a letter from my Bank, Standard Life, to say that the Bank’s last rate cut of 0.25% would not lead to a cheaper mortgage. Like many other lenders, the Standard Life, have not passed on the Bank’s rate cut to customers. They argue that this is due to deteriorating conditions in the money markets. There is some truth in this and although irritating for customers, it is not surprising many banks are taking the opportunity to increase their profit margins.
However, it does mean that the last rate cut by the bank may have little impact on boosting aggregate demand. Therefore, there may be increased chance of a future rate cut, if not in March, then possibly April or May.
Further evidence to support another base rate cut includes:
- Falling house prices, 5 months of declines have now been recorded.
- The Bank voted 9-0 to vote for last cut
- Predictions for rising unemployment at the end of the year
However, there are some factors which make rate cuts difficult.
- Cost push inflation factors like oil, energy and wheat.
- Resurgence in consumer spending over Christmas
- Falling pound making imports cheaper and AD increase
