15 April 2008

Bank of England Reduces Interest Rates to 5 per cent The Bank of England has cut interest rates by 0.25 per cent to 5 per cent in a bid to give some relief to mortgage holders.This would mean that someone with a £100,000 mortgage would see £16 cut from their monthly repayments but the ongoing squeeze in the money markets means that it is unlikely that lenders will pass on the cut in full.

The credit crunch - which has drastically increased the rate at which financial institutions lend money to each other - has already caused virtually all mortgage providers to increase rates and axe deals. This could well be bad news for those looking to remortgage with High Street lenders and it is worth shopping around online and seeking advice on another type of debt management solution.i

Interest rates have been cut twice recently, in February and last December. On both occasions, lenders either failed to pass it on or reduced rates by a fraction of the amount.In a statement, the Bank said, "Credit conditions have tightened and the availability of credit appears to be worsening.”

"In the UK, business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year. This should help to keep domestic inflationary pressures in check in the medium term."Investec chief economist, Philip Shaw, said, "We are not at all surprised that the MPC has decided to cut rates today - clearly, the economy is slowing and there's been a barrage of negative news on the economy over the last couple of weeks.”

"Looking a little further forward, we expect rates to come down again, but the extent to which monetary policy eases depends on the state of credit markets over the next few months." Economists had expected the Bank's Monetary Policy Committee to back a cut.The Bank of England's decision is not expected to have been easy, with the official measure of inflation, the Consumer Prices Index (CPI), edging higher than the government's 2 per cent target to 2.5 per cent.