Mortgage wars

Tax cuts in the budget - who needs them? The mortgage war that has just broken out in the high street between banks and building societies will cut a typical interest-only £60,000 mortgage by nearly £40 a month. This will put extra cash into the pockets of borrowers who can either spend or save it. This will undoubtedly fuel the feelgood factor in advance of next month's budget.

A reduction in mortgage interest rates is not a gain for everyone. Those without mortgages or savings are unaffected and those with savings will now receive even less generous interest payments from their banks and building societies. However, savers tend to be older and do not alter their spending habits in response to interest rate changes in the same way borrowers do - so the net effect of the mortgage wars is likely to be a boost to spending. This could pose problems if it continues because consumer outlays have to be kept under control to make room for the big rise in public spending the chancellor is planning for the next few years. But all that is to come. In the run-up to the election he will be delighted that the banks are having their own mini-budget in advance of his.