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Base rate cut may still be needed

Thursday 27th March 2008

Current conditions in the UK economy could typically be seen as reasons not to lower the base rate, according to John Charcol.

The independent mortgage broker notes that growth expectations are improving, while inflation is above the target figure of two per cent.

However, the Bank of Englands monetary policy committee (MPC) may still elect to cut the base rate further, the organisation predicts.

Product manager Katie Tucker explains: "Mortgage lenders own cost of borrowing is high and a further Bank Rate cut may be used to relieve this.

"The hope for buyers and homeowners will be that the MPC is not deterred from implementing another rate cut soon."

However, she notes that a potential deterrent could be supplied if the Banks governor Mervyn King is required to write a letter to chancellor Alistair Darling to explain why inflation has exceeded three per cent.

Such a letter was necessitated in April 2007 following the news that inflation had reached 3.1 per cent and, with the next inflation report due for publication on April 15th, a subsequent letter could be required one year on.

If the MPC were to overcome the pressures exerted by this, however, Ms Tucker argues that some "relief to their purse-strings" might be extended to homeowners.

For those looking to remortgage in the present climate, she advises that the two-year fixed-rate deal from first direct remains a "best buy".

But those who are looking to borrow between £50,000 and £56,000 are told to consider Cheltenham and Gloucesters two-year deal at 4.88 per cent, as it could work out cheaper.©

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