With growing signs of falling UK consumer confidence, the Bank moved to cut interest rates by 0.25% from 5.75% to 5.5%. However, it is uncertain whether the interest rate cut will actually be passed onto homeowners. Due to the credit crunch, there is a real problem of a shortage of funds for mortgages. For example, Standard Life recently increased its standard variable rate, independently of the Bank of England’s base rate.
If banks do pass on the base rate cut to consumers it could see the cost of a £150,000 mortgage fall by £24 a month.
However, with house prices falling for the third month in succession, there are hopes and predictions that interest rates will continue to fall in 2008. (interest rate predictions 2008)
As long as inflation does not rise (due to say rising oil prices) the weakening of the retail sector should leave scope for interest rate cuts in the new year.
Interest rate cuts may also lead to a weaker value of the Pound in 2008.
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2008 should see the interest cut effect more which is why Sterling has dramatically dropped against the Dollar and Euro recently due to the anticipation of more interest rates cuts to follow.
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