Index Financial

In the wake of the recent interest rate cut by the Bank of England, mortgage lenders have moved to slash home loan rates- in keeping with the trend.
In a further effort to avoid a sluggish economy, mortgage lenders have announced they will pass on the savings to consumers which could equate to a £100,000 mortgage being decreased by £16 a month.
Economic adviser to the British Chambers of Commerce, David Kern stated, “The MPC’s decision to cut interest rates to 5.25% was necessary for the economy. In the face of worsening global and domestic conditions, a refusal to act would have entailed unacceptable risks.”
Mr. Kern also asserted the move is “not adequate on its own” as threats to growth are “much more acute” now than the risks of inflation. “We would have welcomed a bold UK move to five per cent,” he concluded.
Where as a rally for a hedge against inflation is an understandable stance in these tough economic times, a balanced approach will most certainly cause fewer tidal waves, as consumers inch their way forward through these critical issues.

Because of clear signs of the slowing UK economy, the Bank of England dropped interest rates by one-quarter per cent to 5.5%. This additional decrease in rates came as a welcomed reprieve for borrowers; especially since it arrived on the heels of E. On (the major power company) raising its prices to consumers.
Energy and the cost of its delivery, is poised to become the hot topic among consumers and economists alike as the price of oil continues to fluctuate at record breaking highes. These painful realities are being felt on a global scale, while industrialized nations strive to maintain economic balances between costs and inflation.
Ray Boulger, of John Charcol, offered: “With the Monetary Policy Committee (MPC) receiving significant criticism for not cutting the rate for a second consecutive month in January, after a unanimous vote for the December cut, together with discussion on whether a 0.5 per cent cut might be necessary to achieve economic stability, there was never any real doubt on the outcome of today’s meeting.” Mr. Boulger also added that the MPC is now effectively “running hard to stand still.”
The nine members of the MPC vote every month and the decision it makes on interest rates are based on the results.
Necessitating a watch on inflation as well as addressing the slowing economic growth, the Bank ruled out a bigger cut. Maintaining a timely balance of all economic factors can be a daunting task; but any economist can attest that making too great a cut in rates in too short a period of time can bare negative consequences of its own. Monetary balance, common sense borrowing and transparency in lending will be key aspects in assisting a healthy economy in the UK.

Global Insight predicts that interest rates could be as low as 4.5% by the end of 2008. It is also esteemed that in the first half of 2009 rates could decline further to 4%.
“We currently forecast interest rates to fall to 4.50 per cent by the end of 2008 and to 4.00 per cent in the first half of 2009. This is based on our assumption that the UK will avoid recession, but will see extended below-trend growth,” offered Howard Archer, chief European and UK economist for Global Insight.
He also added that the company’s specific predictions of the GDPs growth will be limited to 1.8% in 2008 and 2009 which would be “the equal weakest performance since 1992.”
With the most recent interest decision, which was expected to cut rates by at least another quarter per cent, there is no denying the slowing of the over-all economy in the UK.
This new landscape will however, offer a correction to the lending and housing industries, thus bringing more affordability to home buyers as housing prices and lending rates dip with the trend.

The recent rise of inflation in the UK is hurting more than consumer pockets. A Consumer Barometer from Lloyds TSB Corporate Markets shows the number of consumers expecting interest rates to be higher rather than lower grew by 2% last month.
Trevor Williams, chief economist with Lloyds TSB Corporate Markets, asserted that even an interest rate cut this month may not help boost consumers’ confidence. The financial services provider connects the rise of consumer doubts in January, which was the first increase in six months, with the increasing culture of worry in Britain.Mr. Williams stated, “As far as consumers are concerned, any respite granted in interest rates today will be short-lived. Even so, if we do see a cut this will ease the burden of interest payments and as such will help boost economic activity.”
While the economy is teetering on uncertainty, consumers and credit card holders may find debt consolidation loans useful in taking control of their financial instability. According to uSwitch.com, debt consolidation loans can be a help to consumers struggling with the impact of fewer available funds.

A price comparison Web site points out that although “not unexpected”, the recent interest rate cuts made by the Bank of England could serve to fuel inflation. Many economists agree that continually cutting interest rates could spur borrowing in an economic platform already stretched to tight limits.
As noted by Fool.co.uk, the recent decrease in the cost of borrowing, down a quarter-point to 5.25%, could worsen the state of Britain’s economy. Amid rising energy costs and all time high oil prices, the Bank of England appears unwilling to acknowledge inflationary concerns, and avoid an outright recession.
“However, consumers should be aware of the damaging effects of inflation even if the Bank of England chooses to ignore it for now. In order to beat rising prices, we need to ensure that any savings we have will guarantee a better return,” commented David Kuo, Head of Personal Finance with the Web resource.
Additionally, while consumers are being faced with growing costs, the Bank of England predicts the demand for secured loans to grow during the first three months of the year.