Ray Boulger senior technical manager at John Charcol said: "Most sectors of the economy clearly need a rate cut soon, as the continuation of weak statistics over the last month has confirmed. The vision of the majority of the members of the MPC in ignoring some of the siren calls over the last few months for a further base rate increase is now apparent to most people. Indeed The City has already voted in a big way with their (or rather other people’s) money over the last month with gilt yields, and hence also swap rates, recording the biggest monthly fall for a considerable time, reflecting a sharp change of mood. The MPC obviously judged today was too soon to start cutting, but the vote is likely to have been split again, the difference being that the minority voted for a cut rather than an increase.
"The MPC will also be looking for further ripples from across the Channel, with a change of tack from the European Central Bank now looking distinctly possible after 2 years of an unchanged 2% repo rate. Within the last week their chief economist hinted at a rate cut in the not too distant future, although more than one cut will be needed to repair some of the damage wreaked by the Euro on the German, French and Italian economies. To their credit, the ECB appear to be actually listening to the referenda results in France and Holland, which is encouraging in view of the Eurocrats and heads of most EU countries preferring to take the view that the voters got it wrong."
Boulger continues, "With the anticipated downward movement in Euro interest rates our exclusive and innovative Euro Libor tracker looks increasingly attractive. Even before any rate cuts the current pay rate is some half a per cent better than on similar trackers linked to UK rates.
"Back home, fixed rate mortgages are becoming cheaper by the day, as a result of which borrowers - particularly those coming off the historically low fixed rates of summer 2003 – will experience much less of a payment shock if they want another fixed rate than looked likely even a month ago. However, it is rare to see a single base rate move in isolation, and so the money markets are likely to start pricing in further rate cuts soon, resulting in the cost of fixed rate mortgages falling further.
"Therefore, borrowers keen to benefit fully from the anticipated downward base rate movements over the coming months should continue to focus on a tracker or discount mortgage, especially as the rate cuts may well be sooner and larger than is currently priced into the market."
