Bank To Cut Interest Rates Aggressively in 2008

The Bank of England says that it may have to cut interest rates aggressively next year in order to prevent the economy from plunging into recession and to avoid a big dip in the UK property market.

The Bank has admitted it has been shocked by the scale of the property market downturn and says that there is a risk of a severe reduction in the availability of credit for families.

As a result, it said that substantial interest rate reductions maybe needed as the economy’s fortunes dive.

The warning came in the formal minutes of the Banks latest rate-setting meeting, when it cut borrowing costs by a quarter point to 5.5%.

Economists have said that it is very unusual for the Bank to be so forth-right about the need for further reductions, but the components will provide hope to property owners and property investors that lower borrowing costs are on the way.

The Royal Institute of Chartered Surveyors said that up to 123 property owners a day could have their properties repossessed by their banks in 2008 – a rise of 50% on this years figure.

In a separate development, Chancellor Alistair darling has mentioned that Britain faces ‘uncertain testing times’ as the world credit crunch deepens.

He warned that he is planning a painful squeeze on public spending, which will only add to the headwinds facing the economy.

The promise of more Bank of England rate cuts will bring some relief to property owners who have built up a record £1.3 Trillion debt mountain.

However, many banks are dragging their feet on passing the latest rate reduction to customers. Adding to the pain, the Financial Services Authority yesterday urged lenders to hang on to more of their cash.

Stricter lending criteria at major firms could further squeeze the supply of loans to consumers in the New Year.

On a positive note, property owners and the many property investors in the UK will be pleased to hear about the latest plans for further interest rate cuts in the New Year.  However, the fortunes of the economy and the property market hang in the balance in 2008 and their well being at this stage remains uncertain.