07 Feb, 2008
Tanya Powley - 07-Feb-2008
Bank of England has cut base rate to 5.25 per cent from 5.5 per
cent today as was widely expected.
The MPC judged that a reduction in rates by 0.25 per cent was
necessary to meet the 2 per cent target for CPI inflation in the
CPI inflation was at 2.1 per cent in December but the MPC says that
higher energy and food prices are expected to raise inflation,
possibly quite sharply, in the coming months.
Following the announcement, Nationwide, Woolwich, Halifax, Lloyds
TSB and Cheltenham & Gloucester have announced they will be
reducing their SVRs by 0.25 per cent.
Nationwide says its SVR will decrease from 6.99 per cent top 6.74
per cent. It claims that this will leave it around 0.50 per cent
lower than the SVRs of most other major high street lenders.
C&G and Lloyds TSB will be cutting their SVR from 7.50 per cent
to 7.25 per cent. The decrease for existing borrowers will come
into effect on 1st March 2008 and the change for new applications
will take effect from Monday 11th February 2008.
Head of intermediary sales Kevin Purvey says: "The Bank of England
is facing a particularly tough balancing act at the moment. On the
one hand it needs to ensure that the expected economic slowdown
does not become too pronounced, while on the other it has to keep
the lid on the inflationary pressure, resulting from higher energy
and food prices.
"The Bank has been fighting a battle against inflation for some
time now and so it had to encourage some slowdown in the economy,
by raising rates to 5.75 per cent last year. As for the future; we
can probably expect to see a modest rate cut in the spring, most
likely May, when evidence of a slowdown will be clearer.
But Purvey warns that if inflation continues to rise above its
target of two per cent, the market is unlikely to see base rate
drop much further this year, unless the economy really does take a
turn for the worse.