As expected, the Bank of England cut the base rate by 25 basis points to 5.25%. This cut had been widely expected, and the only question was whether it would be a cut of 25 points or 50 points.
The reason for the base rate cut was
- Slowing demand in both the UK and global economy
- Falling house prices in the past 3 months
- Decline in consumer confidence
- Growing levels of personal debt.
Prospects for Interest Rates in the rest of 2008
Despite the rate cut, there may not be too many more cuts this year. The Bank point to the fact that the economy is still expanding, there is only a relatively minor fall in consumer confidence. Furthermore, inflationary pressures are not completely subdued. Rising energy prices and food prices are pushing up cost push inflation.
The outlook for interest rates will depend on the outcome of the Bank’s next inflation report. It also depends on how much house prices continue to fall. Sharp falls in house prices will be a powerful negative impact on consumer spending.
Will Homeowners Benefit from the Cut?
Maybe, but, it could take a long time for mortgage lenders to pass on the rate cut to homeowners. They may even keep there SVR the same due to more expensive borrowing costs on credit markets.
Those with Tracker mortgages will, of course, benefit from the cut straight away.