Good news for borrowers, the price of fixed cost mortgages fell in the month of July. The average interest rate fell from 6.6% to 6.3% for those with at least a 25% deposit.

Most lenders have been cutting their rates recently in an effort to attract new custom after business stagnated for most of the past year. This includes all the main high street lenders and several smaller, independent operators.

But the figures disguise a picture that is more complicated. While shorter term fixed rates have fallen, longer term fixed rates and rates for those with smaller deposits have in fact risen.Borrowers looking to fix their home loans for five years, and with just a 5% deposit, are paying more, up from 7.13% in June to 7.14% in July.

It is interesting to note that the standard factors which usually determine the rates at which mortgage rates are set, including bank base rate, swap rates and Libor rates are all much lower than this time last year, yet the rates on offer are much higher.

This reflects the panic in financial institutions about exposure to risk due to continuing sub-prime losses being revealed here in the Uk and in the US.

The Bank of England (BoE) has today announced that it does not expect the UK economy to grow at all over the next year. This is the latest downgrade of growth assesments and many analysts believe a recession is now inevitable.

While the word inevitable is quite strong there are several reasons for using it. Firstly, inflation has reached 4.4% and is predicted by the BoE itself to reach 5% before peaking. This will make it all but impossible for interest rates to be cut in the near future.

This means inflationary pressure will only be brought under control by the slowing growth. This will take much longer to effect than interest rate cuts and may require the economy to go into recession before it becomes effective.

The tight credit conditions will further depress the housing market, with prices continuing to fall for some time yet. Similarly, lack of easy credit will dampen consumer spending and add to the slowdown on the highstreet.

There is reason for hope, however. The recession, if it comes, is expected to be brief. The correction in the market is expected to be painful, difficult but short lived. The growth rate and inflation rate are expected to stabilise within two years.