While the financial world waits for the latest move from the Federal Reserve Bank, it might be a good time to consider the implications for homeowners in the UK.

The fact is that any change in interest rates in the US will have little direct affect on UK homeowners.

It will be the rhetoric surrounding the announcement, which will be closely monitored to find hints as to the health of the US economy.  There is no doubt that the state of the US economy affects every other economy around the globe.

Most of the central banks do a similar dance around monetary policy, but they are all dancing to a different beat.

The US has been lowering interest rates since September last year, the UK started reducing closer to Christmas, while some other central banks such as in Australia have increased their base rate to curb inflation.

When central banks decided to uniting to reduce the impact of the sub-prime crisis it made front-page news around the world.

The banks agreeing to move in the same direction is big news, and not something us investors would expect every day.

Central banks can only create and change policy according to real figures sourced from the domestic economy.

Bankers need evidence and justification for change, if they make changes without the evidence to back it up then hard questions will be asked.

By paying attention to the CPI, employment rates and GDP an investor can have a pretty clear picture of the way interest rates are headed.

It might be weak but the UK has experienced economic growth in the first three months of 2008.

Despite the economic slowdown and low consumer confidence the Office of National Statistics has reported that the UK economy grew by 0.4 per cent in the first three months.

The growth was reported in analysing the gross domestic product for the first quarter.

The growth is lower than what was expected by analysts, but GDP is still growing rather than contracting. Many expected the slowdown to be so steep that it would result in negative GDP in the first quarter.

The strength came from the service sector that grew by 0.6 per cent in the quarter. The biggest percentage decline was in mining and quarrying, which fell by 5.2 per cent.

There is a chance that the UK might just avoid a recession, and the lower growth might give the Bank of England the confidence to lower interest rates again next month to keep the balance sheet in the black.

The bank expects this slowdown to have a negative effect on inflation; it has yet to come to fruition with high food and energy prices maintaining pressure on prices.

Do we need a retraction in the economy before inflation starts to slide?

Maybe, but is it really worth the risk.

The smart money is on the Bank of England maintaining the base rate at its current levels, and wait to see if market weakness can reduce the inflation rate.

As we have seen in the last year or so, the market has more impact on inflation than any action by the Bank of England.

Chancellor Alistair Darling wants banks to help easy the credit crunch by passing on rate cuts, but banks will try to resist any weakness to their bottom line.

Historically banks have always been held up as institutions and safe sharemarket investments.

They were a safe haven and immune from financial trouble as they controlled the money. But if this credit crunch has proved anything it is that banks are like any other business.

They are exposed to slowdowns and credit troubles, not only does it increase the levels of bad debt on their book, but it also increases cost with credit markets tightening.

Need we be reminded of the long lines of customers abandoning Northern Rock late last year?

With these conditions there is growing economic pressure not to reduce interest rates to maintain profit margins, even with the base rate in decline.

Darling’s ‘request’ for relief for customers from the banks, will hold little weight with the banks that are seeing their ledgers drained.

Some banks have reduced their interest rate after the Bank of England reduced the interest rate by 0.25 per cent, from 5.25 per cent down to 5 per cent.

But the cost to homebuyers wanting to establish a mortgage has risen, it is the case of giving with one hand and taking with the other.

Darling comments were definitely a warning to banks, after also mentioning the rescue money that the Bank of England and the HM Treasury supplied to stressed banks and financial institutions was a show of goodwill from the government.

But these words are falling on deaf ears as all the attention turns to the US market that shows all the signs of being in a recession, and the banks asking each other how bad this slowdown will hit.

It’s official. The Bank of England and those with control over the purse strings are more concerned about the global economic slowdown than rising inflation.

Earlier this week the Bank of England reduced the interest base rate by 0.25 per cent, from 5.25 to 5 per cent.

This is the third rate reduction in a row, and it is a clear message to the market that central bankers are more concerned about the economic slowdown than increasing inflation.

The central bank expects economic growth in Britain to be around 1.5 to 1.75 per cent, but given the brakes that are currently influencing the economy many commentators believe the bank’s growth estimate is optimistic and a recession is unavoidable.

The central bank believes that a weak economy will put breaks on inflation, and the reduction in interest rates will not contribute to inflationary pressure.

“Even if commodity prices remain at their current high levels, inflation should fall back,” a statement released by the bank stated.

“But to ensure that inflation meets the 2% target in the medium term, the Committee needs to balance two risks.”

Only time will tell if the balance will pay off.

The current environment of record commodity prices and rising inflation (2.5 per cent), with a rapidly cooling economy and tight credit markets is putting up new challenges for economists.

How they deal with these market conditions could re-write the rule book on economic management.

The US is already looking at inventive ways to calm the market, and bring balance back to the economy.

Halifax, the UK’s largest mortgage lender, has turned its attention to borrowers with significant deposits.

To draw in this market Halifax is offering discount rates for borrows with capital.  The best rate is reserved for borrowers with 25 per cent or more of the property value.

For struggling first-home buyers looking to get into the market with low deposits, there are even tighter rules which attracts a higher interest rate.

It was not unexpected, with a tight liquidity market and greater value put on low-risk borrowers, there is a growing trend for lenders to look at the quality of their loan books rather than quantity.

Halifax’s new mortgage packages is only one example of how the credit crisis gripping the global markets will affect the UK credit market in the long term.

In the short term these new lending packages will contribute to a slowdown in mortgage approvals and overall housing market weakness.

However in the long term the tougher credit rules will strengthen the credit market and bring renewed confidence to the domestic economy.

The question is who has to hurt now, for a brighter economic future. The answer seems to be struggling homeowners who are already sailing hard into the wind of high household debt and raising costs, and renters who are facing higher rents and major hurdles to buy into the housing market.

These two large groups are usually the first to suffer in any period of economic slowdown.

Sub prime is a buzzword at the moment, and the way things are going it will soon earn an entry into the Oxford dictionary.

The meaning could be twofold: (n.) loans given with little or no security from the borrower, or (adj.) the description given to an economy suffering from poor management and slack lending standards.

Sub-prime the adjective is headlining the business pages at the moment.

It was used by BBC recently when reporting another write-down by Swiss financial group UBS.

UBS also announced that the chairman Marcel Ospel has stepped down in light of these latest write-offs.

There are financial companies out there with falling stock prices due to the “sub-prime crisis”, but have strong management and well-maintained balance sheets.

These companies will be the market darlings after the dust settles and the crisis is over.

But, now could be the right time to re-enter the market and pick up some of the stock on the cheap.

A word of warning however, it is important for any investor to do their homework, ask questions and make educated decisions.

Analysts and investors are concerned that, despite financial institutions writing off billions of pounds in the last quarter 2007 and this latest quarter, there is still billions unaccounted for as more borrowers struggle with their loans.

There may be a few more big institutions to fall yet, but you can be sure there are many companies out there with the right checks and balances in place to weather the storm.