On top of gains from the Budget "giveaways", average homeowners can look forward to another significant drop in the cost of their monthly mortgage repayments.

The day after a Budget tax reduction worth £581 million, the Central Bank announced a rate cut of almost 0.7 of a percentage point, indicating even larger than expected gains for tens of thousands of mortgage holders. Already benefiting from two recent interest rate cuts, borrowers will now see repayments fall again in January.

Under normal circumstances a cocktail of tax reductions and falling interest rates would have most economists predicting dire consequences in terms of overheating. But this time all is different.

For a start, we are now effectively "in" monetary union, as yesterday's co-ordinated round of interest rate cuts made clear. Now that we have ceded control over interest rate policy, this makes the role of fiscal - or tax and spending - policy even more important, as the only route open to the Government to influence the overall level of economic activity.

Normally, the Budget tax cuts and spending increases would be called expansionary and declaimed by many in business. But this time the Budget has been broadly welcomed. Some 80 per cent of accountants even said it was good for business - according to an Institute of Chartered Accountants survey - despite its focus on the lower paid. And the most generous Budget in the history of the State was even welcomed by stockbroking economists, never slow in the past to criticise.

Despite the large tax cuts and spending increases most economist believe that the Budget is an attempt to tackle vital supply-side issues - particularly the difficulty facing many firms in finding lower-wage employees - which are most likely to cause a downturn here, according to Mr Jim O'Leary, chief economist at Davy Stockbrokers.

There is almost universal acceptance that the Budget is good for the jobs market. It widened the financial gap between being on welfare and in work, particularly by taking the first £100 of weekly income out of the tax net. Focusing most of the largesse on the low paid also avoids the danger of encouraging more net immigration back to higher paid jobs - with the consequent pressures that has on general infrastructure and housing in particular - according to Mr O'Leary.

However, the Budget did not live up to expectations in tackling the other major supply problems in infrastructure and housing. The 20 per cent increase in Government investment spending next year is of course welcome, but overall is scarcely a drop in the ocean of what is needed. IBEC has estimated that £14 billion is needed to fill the infrastructure "gap" and even that does not include spending on the local road network. And yet it is six times greater than the allocation in this year's Budget.

On top of that, there were few measures in the Budget relating to housing - a situation almost at crisis point. And it is here that most of the stimulus from lower interest rates will be felt. Variable mortgage rates are now to fall again, with Irish Permanent cutting its standard variable rate by 0.5 of a point to 5.5 per cent.

As Mr Jim Power, chief economist at Bank of Ireland Treasury says, the rate cut will render the measures introduced on foot of the Bacon proposals quite meaningless and the housing market will remain strong through 1999. In general, despite the Department's claims that the Budget is technically contractionary - with the Budget surplus rising by 0.1 per cent of Gross Domestic Product in 1999 - it will certainly boost disposable income. According to Mr O'Leary, the tax and social welfare package will give a boost to household incomes of 1.6 per cent in the calendar year of 1999 and 2.5 per cent in the full year.

And the expected mortgage interest rate cuts will add to that, if only a little. Most of the rate cut has been expected and is probably already in most people's expectations.

However, the problem may be if the surprise timing and extent of the latest cut persuades people to believe that we are now in an era of permanently low interest rates, with further reduction possible over the next year. That would certainly give a further boost to asset-price inflation, particularly in the housing market.

Up to now, most analysts had predicted that 3 per cent would be the bottom for European interest rates, but then most analysts did not predict that it would be the Bundesbank rather than the ECB cutting rates in December rather than in January or February.

The rate cut also implies that the Bundesbank, and presumably the ECB, are happy enough with inflation running between 1 per cent and 2 per cent. And that is probably good news for Europe.

The biggest threat to Europe's well-being at the moment is generally perceived to be disinflation and a central bank intent on keeping consumer price rises close to rock bottom could risk pushing the continent in that direction.

Even for Ireland, the interest rate cuts could have some beneficial impact. The biggest threat to Ireland's well-being - as Mr O'Leary points out - is that foreign direct investment will slow down and exports fall off as our main European markets slow. That could even lead to some plant closures. A general interest rate cut makes all of this less likely.

But some analysts are still wary. Mr Power warns that interest rates have now moved from being "inappropriately low to ridiculously low" and will obviously have a further stimulatory effect on the economy.

The other question of course is why exactly the Europeans chose to cut rates early. According to Mr Power, it is a definite sign that the region has already been badly affected by the global slowdown and gets rid of any element of uncertainty about where rates will be after the euro is formally launched on January 1st. Most analysts believe that there is a solid rationale behind the cut and that political pressure had no impact.

But that is not the way the move may be seen by the average voter in Germany or indeed elsewhere. Political pressure for lower interest rates from new German Finance Minister, Oskar Lafontaine, is so recent that it would be hard to say there is no link.

Most analysts would have assumed that the politicians would have had to be silent for longer, before the central bankers would even countenance a cut.