BoE Cuts Interest Rates To 5 Per Cent

Fri, 11 Apr 2008

The Bank of England has slashed UK interest rates to five per cent, as the economy continues to slowdown and house prices stumble.

The 25 basis point reduction in the Bank base rate was widely expected, but pressure has now increased on lenders to pass on the cut to borrowers .

New data from the Council of Mortgage Lenders revealed repayments on a variable rate repayment mortgage of £150,000 should fall by £22.98 after a 0.25 per cent rate cut, while on an interest-only mortgage repayments will fall £31.25.

Further interest rate cuts are now expected later in the year, although the monetary policy committee (MPC) still needs to balance inflationary pressures and the needs of the economy amid the on-going credit crisis.

It is hoped the slowing economy will eventually help to bring down inflation, which is currently half a percentage point over the target of two per cent.

Capital Economics member Julian Jessop predicted that UK interest rates could fall to as low as 3.5 per cent by next year.

"Since last month’s decision, the dilemma facing the MPC has not got any easier to resolve," he said. "But on the whole, we think that the renewed problems in the money markets and the recent dire news on house prices will carry greater weight than inflation concerns at today's meeting."

"The UK economy is facing similar economic imbalances to those unwinding with devastating effect in the US . The upshot is that interest rates will need to come down considerably further," he added.
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