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07 Feb, 2008

Tanya Powley - 07-Feb-2008

The 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 medium term.

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.

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