Historic rate cut by Bank of England

The Bank of England has slashed interest rates to 3%, cutting 1.5 points off the base rate, in a surprise move that will benefit small businesses and home owners. It is the first time that rates have been cut by more than half a percentage point since the Bank gained its independence in 1997. The last time the rate was as low as 3% was in 1954.

[ClickPress, Fri Nov 07 2008] The Bank of England has slashed interest rates to 3%, cutting 1.5 points off the base rate, in a surprise move that will benefit small businesses and home owners. It is the first time that rates have been cut by more than half a percentage point since the Bank gained its independence in 1997. The last time the rate was as low as 3% was in 1954.

The sharp cut is expected to bring instant relief to some 4 million home owners on tracker rate mortgages, whose rates are tied to the Bank’s base rate. This could mean a monthly decrease of around £80 for someone with a £100,000 mortgage.

However, there are signs, amid growing anger, that banks seem to be resisting calls from Gordon Brown to pass on the benefits of lower rates to all its customers. The only cuts that will definitely be passed on are to existing customers on tracker rate mortgages, but there is no guarantee that the cut will be passed on in full to those looking to take out a new mortgage or to those coming to the end of their fixed deals and needing a new loan.

In fact, a number of banks, including Northern Rock, Lloyds TSB, and the Woolwich, are expected to put up rates on some of their tracker rate mortgages for new customers. This will be a blow for borrowers trying to buy for the first time or who were hoping for cheaper rates when remortgaging.

The chairman of the Independent Banking Advisory Service, Eddie Weatherill, said, "Consumers will be incensed to think that the Government lays out a firm line with the banking industry, only to find out that this turns out to be meaningless drivel."

It seems that while bringing welcome relief to some categories of homeowners, the huge rate cut will not alone give the needed shot in the arm to the housing market or the wider economy, especially without the full cooperation of banks to do what they government is encouraging and hoping they will do – pass on the full benefits of the cut to all categories of loans for new customers as well as existing ones.













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