UK Interest Rate: 3%

UK Interest Rates Forecast: Unclear at present, further cuts possible

Bank of England Slashes rates By 1.5%

The Bank of England has cut interest rates by 1.5% in an aggressive move aimed at limiting the scale of the economic downturn.

Although a cut was expected this month, the size of the reduction in the Bank Rate has surprised many people - although most industry bodies and economists have welcomed it as helpful and necessary.

Will Mortgage Lenders Pass On This Rate Cut?

A key test of the effectiveness of the Bank of England's decision will be whether the UK's mortgage lenders cut their variable mortgage rates. Early indications are that many but not all lenders will pass the cuts on in full to their variable rate customers.

Of course, if you have a tracker mortgage, you are guaranteed to get the full cut, as your mortgage rate tracks a fixed percentage above the Bank rate.

On the other hand, anyone with a fixed rate mortgage will not see any benefit - your mortgage rate will not change until the end of your fixed rate period.

Are There More Cuts to Come?

Despite the size of this month's cut, many economists believe that there may be further cuts to come, taking rates down to 2% or even below.

IHS Global Insight chief economist Howard Archer said that he believed rates could come down to 1.5% by mid-2009 and that "the economy will contract up to, and including, the third quarter of 2009 before stabilising".

This sentiment was echoed by ING economist James Knightley, who said he believe that rates will fall to 2.5% in December and 2% in January 2009.