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Thursday, 10 April 2008

Interest rate cut to 5% - helpful but pain in 2008 cannot be avoided

The Bank of England cut interest rates today to 5%. It has been said by many of my colleagues that this won't make any difference to the economy. This is clearly not the case and I think they are thinking more about their own economies rather than the rest of the UK.

It is fair to say that most of my colleagues won't see an instant impact upon their mortgage rates. Tracker mortgages will see a benefit but given the rapid decline of mortgages repayment costs for those looking to remortgage will probably remain high for some time. Nevertheless, they would be higher had the Bank not cut today.

For the wider economy this move should help to take some of the strain off the financial markets. Don't get me wrong, the problems in the financial markets can not be overcome by the Bank making a few interest rate cuts and the problems in the markets are likely to continue for some time. Nevertheless, this cut provides some breathing room which will give the financial some more time to sort out the mess they are in. Fundamentally, the problems in the financial markets is one of a lack of confidence, if the markets can maintain some sort of stability for a few straight months then maybe we will see of confidence return.

We continue to be in for a very rough ride with the problems in the financial markets compounding the growing problems in the wider economy.

The outlook for the jobs market is not great. First to go will be jobs in the financial sector - we have seen Capital One and the Royal Bank of Scotland announce job cuts this week. Next will follow job cuts in industries that support the financial sector such as business services and retail surrounding financial hubs like the City of London and finally cuts should be expected in the wider economy.

Although unemployment fell in January and February, the statistics will show this reversing very soon.

Be prepared for painful 2008 and a pretty average 2009.

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posted by Carl Malways at | 0 Comments Links to this post