07 Feb, 2008
Bank of England's Monetary Policy Committee has slashed the
base rate by 0.25% today, bringing it down to 5.25%.
The cut has been predicted by many across the financial industry
and follows rate drops by the American Federal Reserve in January
There is some concern that lenders are not passing rate cuts on to
consumers, which would counter the BoE's efforts to reduce strain
on the finances of home owners.
The last rate cut was in December and many lenders were taken to
task for maintaining higher interest rates in face of recessionary
Michael Coogan, director general of the Council of Mortgage
Lenders, says: "This is good news for the quarter of UK
borrowers on tracker rates who will see an imminent reduction in
"However, borrowers should not expect that a base rate reduction
will automatically result in a cut in standard variable rates or
discounted rates across the market."
He adds: "Lenders' rate setting policies are more complex than
simply the level of the base rate. They are determined by a range
of factors including the cost of retail funding and the cost and
availability of wholesale funding."
Jonathan Cornell, managing director at Hamptons International
Mortgages, says: "By decreasing interest rates it is hoped
that the economy will be cushioned and thus the housing market
supported for another month.
"However, the question on all borrowers' lips will still
remain- when is the respite coming?"
He adds: "Lenders reluctance to pass on respite this month
will now be met with resistance. However, in the current climate
where there is a chronic lack of supply of mortgage funding, there
is a very real danger that new borrowers will see much less of a
cut than many of them were hoping for."
Woolwich has revealed it is cutting its SVR and base rate tracker
by 0.25%, as of March 1, after the MPC's decision.
Andy Gray, head of mortgages for the Woolwich, says: "We would
encourage all borrowers to make sure they get the best deal
available and there are always better deals than the SVR.
"Even when promotional deals come to an end customers should
make sure the product reverts to a competitive rate."
Edward Menashy, chief economist at Charles Stanley Stockbrokers,
says: "The cavalry have returned to save the fort.
"Many will find the current reductions in interest rates as
questionable given the pressure from inflation. Inevitably the
choice is between two evils: no cuts and a possible recession; cuts
and possible inflation."
Ian McCafferty, chief economic adviser at the Confederation of
British Industry, says: "The bank's own forecast in
November suggested that two rate cuts of 0.25% would be required to
meet its inflation target in 2009, and today's cut brings the
base rate down towards a more neutral position.
"This should help ensure that there is a soft landing to the
slowdown now underway."
He adds: "Looking ahead though, the bank must balance the
effect that cutting rates while inflation is rising might have on
its credibility, with the likelihood that further out, the slowing
economy will have brought inflation back below the 2%