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Thursday, 6 December 2007

Interest rate cuts

With the Bank of England cutting interest rates today it seems like some of my predictions for 2008 seem to be coming true - not that they were that hard to see. Hopefully the Bank has acted quick enough to stem some of the worst outcomes for the year.

The housing market will slow but if rates continue to fall then those people who have been holding off buying may start to come back into the market and look for bargains. This could help to keep prices from falling too far.

The banking crisis will continue to be a problem for both the banking sector and the wider economy. However, this positive move by the bank could help to reduce the cost of commercial borrowing and start to reduce the risk premium banks have currently placed upon borrowing. As a result businesses will struggle to find capital to expand but by the middle of the year liquidity problems could start to lessen.

The consumer is set to be squeezed in 2008. The previous interest rate cuts will hit home owners, especially with many coming off their fixed rates in 2008. However, some of the major building societies have already taken the positive steps of reducing their mortgage costs as a result of today's cut.

There continue to be many downsides facing the economy in 2008, however I think we must avoid talking ourselves into a recession. There are upsides and downsides. A period of slower growth will probably be good for the economy in the long run as it will make us reconsider some of the poorer decisions made over the boom years. However a sharp slide into recession will leave scars that will take a long time to heal.

As I always mention, whatever happens, people will be losing their jobs in 2008 and as such competition at interview will become more intense. Take advantage of this site and many others to try and stay ahead of the game.

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posted by Carl Malways at

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