The start of things to come

"The 0.5% bank rate cut announced today was not a surprise but the timing was, as emergency cuts don't normally take place only one day before the next scheduled announcement. However, in the current environment coordinating the rate cut with this morning's Treasury announcement about making substantial funds available to banks and building societies to rebuild their capital and improve liquidity makes good sense. Coordinating rate cuts across the globe, including The Bank of China, must be a first but is perhaps an indication of where the power is shifting. It also demonstrates that at last our Government and others have recognised the scale of the problems" comments Ray Boulger of John Charcol, the UK's leading independent mortgage adviser.

"David Blanchflower's persistence has been fully vindicated and he has proved to be far more insightful than some of his fellow MPC members, especially those who until recently thought an increase in Bank Rate was needed. Further cuts will still be needed, and sooner rather than later. This can be justified within the MPC's main remit of controlling inflation, let alone their wider remit.

"For example, last week the Reuters/Jefferies commodities index of 19 raw materials fell by over 10%, its biggest weekly fall for over 50 years and the Baltic Dry Index, a measure of commodity shipping costs, has fallen 75% since May. These indices, together with the sharp fall to under $90 a barrel for oil, are all strong indications of a sharp fall in inflation over the next year. The November Quarterly Inflation Report will paint a very different picture to the previous one."

What should borrowers do now Ray?

"After initially spiking up on the back of the Lehman's bankruptcy, swap rates have fallen back sharply, especially 2 year swaps, which are now down to 4.9%, having been as high as 5.6% last month. As a result of this and today's package from the Government the recent trend of lenders increasing fixed rates will reverse soon and Bristol & West's announcement of further increases in their fixed rates only 2 hours after today's Bank Rate cut was announced is not likely to followed by many lenders.

"However, with further Bank Rate cuts expected over the next few months it is still too soon to buy a fixed rate mortgage and so we continue to recommend trackers, preferably one with a droplock option which allows borrowers to move to a fixed rate when they so choose to, with no delay or complicated paperwork. For borrowers who want or need the security of a fixed rate there is a good case for delaying an application until the impact of the new paradigm is reflected in lower rates."