10 April 2008
Within the past half an hour, the Bank of England has succumbed to intense pressure to respond to weaker data from the housing market and the wider economy by cutting interest rates.
The central bank's monetary policy committee reduced its main lending rate by a quarter of a point to 5%. While this will act as a relief to homeowners in Britain on variable rate mortgages, it will further hike up the cost of holidaying and buying property overseas, particuarly within the eurozone.
The pound is currently at an all-time low against the euro currency. After treading on the world’s markets yesterday, the euro was worth over 80p. Last November the euro was worth just 69p, which meant that €145,000 home in countries like Spain, Portugal or Italy would have cost £100,000 to buy. Today, £100,000 will secure a home in the eurozone costing only €125,000.
Today’s interest rate cut by the Bank of England is the third since December, while the European Central Bank have held interest rates steady since June 2007. This means that the pound’s strength against the euro will almost certainly weaken further over the coming days and weeks.
Alastair Constance of Mercury Foreign Exchange told Homes Overseas moments ago: “The Bank of England has just announced that it has cut UK interest rates from 5.25% to 5.00%. The markets are expecting more cuts in the year. The European Central Bank is due to make an interest rate announcement at 12:45 BST. The euro made large overnight gains against both the US dollar and sterling. The pound extended declines versus the euro to a low of 1.2460. This is an all time low for sterling against the Euro which makes purchasing stock, property or just some time away in Europe more expensive.”
Editor’s comment
Anyone thinking of buying property in the eurozone anytime soon should think about setting up a fixed exchange rate now. On the other hand should you be selling a home in the eurozone, now is great time to repatriate the proceeds back into Britain.
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