Interest rates: reaction to the record low

Nick Fullerton, FC Exchange managing director, says: “"This 50 basis point cut is brilliant news for sterling – any further cut and it would have been in serious trouble. After we came so near to parity with the euro at the end of 2008, it is has now veered way off and is allowing the pound to gain ground.

“The European Central Bank’s interest rate decision next week will be one to watch as the euro has been performing well, especially against sterling and the US dollar – the euro may struggle to keep this trend up and we could see a rally for sterling.”Vince Cable, Liberal Democrat Shadow Chancellor, says: “As the recession deepens and the risk of deflation continues to loom on the horizon, this latest interest rate cut is welcome. However, cutting interest rates can only go so far to help business and individual borrowers. For many borrowers, the problem is not the price of credit but its availability. The government must now set out a clear strategy for kick-starting lending to consumers and sound businesses. Unless the lending market can be quickly unfrozen, ministers will have to investigate whether one of the state-owned banks can be used to increase lending to businesses.”Piers Cracknell, Moneycorp commercial director, says: “British importers will welcome this decision. The effective cost of imported goods from the Far East has risen by nearly 30 per cent since the summer as sterling has fallen against the dollar and the euro. However, this move could prove to be positive for sterling and we can expect the pound’s recent rally against the euro and the US dollar to continue. The decision should provide some much needed comfort for industries.”Phil Tennant, Hamptons International regional sales director, says: “When the housing market underwent a correction in the mid 1970’s and early 1990’s, the average vendor was already feeling considerable pressure from double figures interest rates, making mortgage repayments difficult for many. This pressure resulted in a considerable increase in supply of new properties, which, in combination with a lack of mortgage affordability, led to a slow and painful decline in prices over several years. Now, with the latest cuts pushing interest rates lower than they have been for 315 years, the pressure is lifted for many vendors who may have otherwise been forced to sell. It is therefore conceivable that we will see a constriction in supply over the next few months. “Lower interest rates will, as always, help to increase demand from potential purchasers.  This combination of changes in both demand and supply could lead to less downward pressure on house prices.”

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