There you are then, the bookies were right and we only saw a half-hearted, half point cut in the Bank of England Base Rate today. This is, however, the lowest rate since 1697 so one musn’t grumble.
If you’re on a tracker mortgage and your lender hasn’t triggered its collar, then you’ll be knocking back the last of the Christmas sherry today. Likewise if you’re on a standard variable rate and your lender passes on all, or even some, of the cut.
What matters most, though, is if, and how this latest cut will affect the dynamic of lending generally. Will the banks cut rates on new products, is there any scope to do this anyway given the interests of savers, will the availability of mortgages increase and could the latest cut encourage potential buyers to commit to a sale? There are lots of questions and in the weeks ahead we will see the answers.
As I have mentioned before, I suspect we are very close to the limit at which lenders can profitably offer mortgage rates and a growing number of lenders may choose not to pass on this latest cut due to the ever-increasing concerns over savers, who will not be celebrating yet another dent in their income.
The products offered in the next few months could be the best we are likely to see in the current cycle. People who opt for a fixed rate mortgage now could do very well, as interest rates will have to rise, perhaps as quickly as they have fallen, once we begin to exit the recession.
The main issue, and one that undoubtedly put paid to a full percentage point cut, is that there is increasingly little room for maneuver as far as using interest rates as a key weapon against the worsening recession.
What is concerning, as rates head closer to zero, is the frightening prospects of deflation and ever-weakening sterling. We are entering the stage of knife-edge economic policy and the Governments next moves will be crucial.
Although we can always just print loads more cash. I am in the process of setting up a sophisticated printing press as we speak. Hey, every little helps!