"Bank of England To Cut Interest Rate by Up to 2%"

nathanhill69

"Bank To Cut Interest Rate by Up to 2%"

Well that's the headline/lead story on the front page of one of the London evening newspapers today. Apparently top economists in the city say the Bank of England have no choice but to start cutting base rates to as little as 3.5% as the credit crunch bites. They predict that by the end of the year the base rate would be cut to 4%, with further reductions in 2009 bringing the rate down to 3.5%....

Just paraphrasing the story (so don't shoot the messenger) but wondered what peoples thoughts on this are and the impact this may have on the mortgage market. Considering many customers are locking themselves into 5 year fixed rates at around 5.50 give or take - is this a decision they may regret.

I have my own opinions on this but wondered if people would care to discuss. The floor is open......

Cardinal-Red

The government will have to have a serious think of how to further fiddle the inflation figures if the BoE do that!

:rolleyes:

sassybooboos

!!!!!! just took new 2 yr fixed mortgage at 5.69% !!!!!!

SALOPMAN

Wow - I have to re-mortgage in next week or so if this hits the headlines it maybe worth me hanging on a couple of months to see what happens i was going to go for a 5yr fixed at 5.69 with current provider but maybe a sit tight for a few weeks or a 2 year deal would be better?? Hope this does happen as his money situation with banks is getting out of hand, can't understand why the USA goes to 2.5 and we are still at around 5 something anyway.....heres hoping

minimike2

I think the suggestion is crazy.

dunstonh

I thought April Fools day had passed.

Rick62

That would explain why swap rates are up then.

drrobert

I can't see the Bank of England cutting rates by as much as 2%.

The principle mandate of the Monetary Policy Committee (MPC) is to control inflation. Inflation is already running above target, and indicators suggest that it will continue to rise:

Telegraph 03.04.2008: "Higher manufacturing costs depress hopes of interest rate cut"

I am sure that the MPC will cut interest rates as soon as they can in order to ameliorate the recession, but the realistic prospect of a 2% fall in UK interest rates would make the pound tumble in the foreign exchange markets, and would drive up inflation dramatically (remember that since 2004, Britain has been a net oil importer).

I think we'll see a tacit acceptance of CPI inflation in the 2.5-3.0% range by the MPC, and, at most, 0.5% rate cuts in the next 6-12 months - certainly not enough to bring about substantial falls in mortgage rates. The UK really is in a financial mess. Political pressure will force some sort of government/treasury initiative to support mortgage lenders (e.g. a government-backed guarantee for lenders), which may or may not help.

Markyt

BoE can't cut rates that much, as inflation is already well over target and that would lift it further.

And even if they did cut it, lenders are still raising rates in the short term - they need to maintain their margins and the cost of raising money is still high.

withabix

2%??

Not a chance.

.25% - certain

.5% - if you think this will happen, can you let me have tonights winning Euromillions number please???

A big interest rate cut would not reflect in mortgage interest rates - the lenders cannot afford it.

With real inflation at more like 6-10% rather than the government's fiddled rate, there's no chance of big cuts.

I doubt many/any lenders SVRs will drop if there is a 0.25% base rate cut next week.

sarkin

2% no chance .25% yes. Even if the BoE cut rates the lenders will not pass the rate cut on as they get thier money from LiBOR which is 6%