More interest rate cuts: good news for loans?

23 October 2008

Many experts – such as Nationwide Building Society – expect interest rates to drop further in the near future.

Every month, the Bank of England’s Monetary Policy Committee (MPC) decides whether the base rate should go up or down, or stay the same. Under normal circumstances, changes are almost always 0.25% – the recent 0.5% cut was the first change of that size since November 2001, when the MPC dropped the rate from 4.5% to 4%.

In times such as these, however, the question isn’t really ‘Will they / Won’t they?’, but ‘By how much?’.

Nationwide’s latest monthly Consumer Confidence Index, for example, sees a 10% chance of ‘No change’, a 60% chance of a 0.25% cut and a 30% chance of a 0.5% cut.

Looking forward to next year, some analysts are expecting the base rate to drop further – to 2% or even lower.

For anyone looking for a loan, this matters. Any drop in the base rate makes it easier for loan providers to offer loans at a cheaper price, as it means they themselves can borrow money for less. “There’s no guarantee they’ll pass on those savings, though,” said a spokesperson for Think Money. “Loan providers are keeping a close eye on their own finances, so it’s very important that people talk to a loan expert who can work with a range of lenders to find them the best loan.”

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