“After The Chancellor’s frank comments at the weekend that Britain is facing "arguably the worst" economic downturn in 60 years which will be "more profound and long-lasting" than people had expected, it is probable that the MPC discussed very seriously whether Bank Rate should be cut as early as today. However the current elevated level of the CPI, with further increases to come, will have been an obvious obstacle to this,”
“Because today’s no change decision by the MPC was widely expected the main focus will be on the minutes, published on 17 September, to see whether David Blanchflower was still a lone voice in voting for a cut and whether Tim Besley has at last recognised that an increase would be inappropriate as the economy rapidly deteriorates. Mr Blanchflower has already indicated that he expected to vote for a 0.5% cut and it is likely there was a three way spilt for the third month running, but this time with the votes being for no change, a 0.25% cut and a 0.5% cut.
“The recent sharp fall in the oil price provides a major fillip to the argument for the next rate cut to be soon, despite its 25% fall in $ terms translating to a smaller but still substantial 18% in sterling. The Consumer Price Index (CPI) will probably increase for another couple of months before peaking around 5% and this will coincide with publication of the November Quarterly Inflation Report, which is likely to be more dovish on the inflation outlook over the next 2 years and hence pave the way for a rate cut in November.”
Ray Boulger has the foloowing recommendations for thos wanting to borrow now.
“Swap rates have continued to decline over the last month, as expectations of the scale and speed of Bank Rate cuts have increased. For example 2 year swaps are over 1.2% down from their June peak at 5.28%. As a result lenders have continued to cut the cost of fixed rate mortgages, with the cuts now also being extended to 90% LTV mortgages as well as more aggressive cuts for rates up to 75% LTV. A modest fall in the 3 month Libor rate, to 5.74%, coupled with an increased level of competition in the market, has even resulted in some lenders cutting the margin charged over Bank Rate on some of their tracker mortgages.
“With Bank Rate expected to fall significantly over the next year it is still too soon to buy a fixed rate mortgage and so we continue to recommend trackers. However, for those borrowers who want or need the security of a fixed rate the good news is that the best rates have now fallen to a similar level to initial rates on the best trackers, and in some cases even a little lower. ”