I fitted a pannier rack to my bike and the placement of it caused the rear derailluer cable and housing to be pushed outwards slightly, increasing the tension in the cable, I guess. The derailleur will move between 7 of 8 gears however the cable is now too taught to get the derailleur moving to the biggest gear. It is also tough to get the derailleur moving between gears without skipping them. I've tried replacing the gear cable only. The cable housing has remained the same length. Would increasing the cable housing length help or is this simply a case of the pannier being incompatible with my bike?
I would concur that the solution here is to increase the length of the cable housing that is inferring with the rack. If the rack is putting any pressure on the cable housing, then it will interfere with the ability of the derailleur to shift properly. Depending on how much free cable is left over coming out of the derailleur, You will most likely need to also replace the cable with a new one that is longer. But this shouldn't cost any more than $10~$20 from the local bike mechanic at the back of your favorite bike shop.