Fraser Nelson

Why falling base rates have lost their sting

Why falling base rates have lost their sting
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Now the Fed has cut US rates by another quarter, what’s next? The City expects UK rates to fall to 4.75% by year-end. Now and again, Gordon Brown likes to boast that he is able to reduce interest rates – unlike the Tories in early 1990s. One of Magician Brown’s favourite tricks is the “false proxy” – saying “base rates are falling, so homeowners can rest easy.” But as I have blogged before, the distinguishing feature of this credit crunch is the decoupling of the base rate from de facto mortgage rates, as the graph below from John Charcol shows. We are entering new territory, and the old financial relationships are not a reliable guide to what lies ahead. In December, the RICS forecast 45,000 repossessions this year – the highest since 1992. The way things are going, I suspect this figure will be revised upwards.

Written byFraser Nelson

Fraser Nelson is the editor of The Spectator. He is also a columnist with The Daily Telegraph, a member of the advisory board of the Centre for Social Justice and the Centre for Policy Studies.

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