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Massive rate cut announced

Written by Gary Howes
Thursday, 06 November 2008
The Bank of England Monetary Committee (MPC) has announced a massive rate cut: we bring you the response. The UK economy has been granted a massive breathing space today as the MPC announces a 1.5% cut in its base lending rate. Related Articles Rate cut: the good and the bad Morning business news: Jan 8th Knives out for banks Basis point rate cut called for Appointment at the Bank of England The Confederation of British Industry (CBI) welcomed the move calling it a bold and welcome move by the MPC. Richard Lambert, CBI Director General said: "Business and consumer confidence has been deteriorating sharply in recent months, and recession has replaced inflation as the major threat to the economy over the next year or two. "This cut of one and a half percentage points should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers." Director of Finance Online had been reporting that such a rate cut, as called for by the TUC, was overly optimistic citing the past prudishness of the MPC. PwC and the FSB also both said they believed the interest rate cut would come in at 0.5% It will now be hard for mortgage providers to not pass on rate cuts to their customers, justifying such a snub will be too hard now considering the scope of the cut. Today the Financial Times drew attention to those providers who have pulled more competitive deals from the market, despite appeals from the prime minister for lenders to pass on cuts in interest rates. Woolwich, Lloyds TSB and Northern Rock on Wednesday all removed tracker mortgages, which follow the movements of the Bank of England base rate, ahead of today's announcement. David Bexon, Managing Director of SmartNewHomes.com, said that unless the lenders passed on the benefits the decision by the Bank of England’s to drop interest rates by 1.5% would mean little for the economy. Bexon said, “While news of this heavy rate cut is welcome in the current climate, the latest drop in rates will have very little bearing on the market, unless we see these cuts passed onto borrowers with immediate effect." “The current rate at which house prices are falling should be the main concern for everyone, lenders included, and everyone will continue to suffer if action is not taken and home buying and home building continue to stagnate. It is essential that mortgage finance is made available in order to kick-start the housing market,” continued Bexon. Other comments by industry leaders Tim Wheeldon, managing director of Fluent Money, says: “The MPC has made a bold move, but I think everyone will agree that it was the right one. The best the pundits asked for was 1 per cent and everyone was expecting less. “This decision should be applauded, the economy needed a significant cut in interest rates to put confidence back into the banking sector, especially if we are to protect ourselves against getting into a long, deep recession. Russell Jervis, Managing Director of haart, comments on the MPC’s decision to cut the base rate by 1.5% from 4.5% to 3.0%: “The Bank of England has undoubtedly made the right decision. Slashing the base rate by 1.5% will act as the vital boost to consumer confidence that has been sorely needed for some time. House prices are more affordable now than they have been for well over a year and the rate cut combined with pent up demand will help kick start activity in the property market over the next couple of months. We now urge lenders to pass on these low rates. Going forward, it is crucial that the Government and Bank of England ensure they continue to safeguard economic stability and consumer confidence which will remain fragile in today’s volatile climate.”