There have been yet more predictions of a cut in the interest rate set by the Bank of England, bringing it down from its already record-low 0.5% figure. The Bank has kept interest rates there for two and a half years now, and some economists are predicting a further fall.
Despite expectations of a drop earlier in the year, it failed to appear, and the Monetary Policy Commission, the body responsible for setting the rates within the bank, indicated that a further drop was unlikely. However, not to be daunted by their previous failings, economy forecasters Capital Economics have said that they believe January will now be the month the rate drops. Previously, they’d said November, but they’ve pushed the date back as winter looms and no rate cuts seem to be on the horizon.
A rate cut itself would leave both winners and losers. Borrowers would find that they could get loans with lower repayments, whilst savers would find they were getting an even lower return on the money they had squirrelled away.
The main contributing factor, according to Martin Beck, the UK economist at Capital Economics, will be whether the government’s Funding for Lending scheme succeeds or not. Lending needs to be boosted, and if Funding for Lending fails to do this, a cut to the interest rate might: “The Bank of England’s latest Credit Conditions Survey certainly suggests that lenders expect the scheme to boost the availability of credit to households, and there is some tentative evidence that the FLS has helped to reduce rates in the wider wholesale market.”
However, despite the indications so far, Beck also points out that we have not seen enough of the scheme in action to draw any real conclusions: “the evidence that the FLS is delivering lower mortgage rates is lacking. In fact, from the limited data we have so far, mortgage rates are still rising,” which means that any guesses about cuts to the interest rate are still just that.