Cut in interest rates expected as mortgage strain increases

06/10/2008

The Bank of England is likely to impose a deep cut in interest rates later this week, economists have said.

Recently, worries of the UK suffering a deep recession have increased due to the worsening crisis in the banking sector - which could lead to more unemployment and further increases in the cost of taking out a loan, credit card or mortgage.

In turn, this would lead to an overall rise in personal debt levels, as more and more people default on payments after finding themselves unable to make ends meet.

Therefore, the Bank is thought likely to cut its current rate of five per cent by 0.25 per cent, or by as much as 0.5 per cent, on Thursday - hopefully easing the pressure on debt-laden consumers.

Speaking to the Press Association Philip Shaw of Investec Securities said: "The world has changed rapidly over the past few weeks and we now expect [a 0.25 per cent cut]…the pace of change in the financial landscape over the past three weeks has been frightening."

Reports of the potential bank rate cut comes as new research from EuroDebt shows rising levels of financial distress among consumers.

The company is providing 109 per cent more Debt Management Plans than it did at this point last year - with mortgages a particular source of strain among consumers.

Indeed, more than one in five homeowners starting a plan with EuroDebt was found to be in arrears on their mortgage.

EuroDebt director, Kevin Still, warned: "With the availability of new credit severely restricted the old habits of using one credit card to pay off another and remortgaging to pay off debts simply isn’t an option for many individuals."

Tags; Current UK Economy, Young Family Finances, Retirement Money Problems, Credit Card Lifestyle, Recent Graduate Debt,

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