Bank cuts rate to 5%

Posted 2008-04-9

The Bank of England has cut the base rate of borrowing to five per cent, as widely expected.

Analysts say the Monetary Policy Committee (MPC) that is tasked with setting the base rate is responding to concerns over the credit crunch, particularly in relation to the mortgage market.

But inflation remains its number one concern and pundits have questioned whether another rate cut is viable in the short-term.

Concerns have also been raised about whether or not lenders are planning to pass on the rate reduction to mortgage borrowers.

Adrian Coles, director-general of the Building Societies Association, cautioned: "The MPCs rate decision may not be reflected by changes to the money market rates. Therefore the quarter point reduction will not necessarily be reflected in the fixed rates on offer straight away."

He added that the rate cut would go some way to boosting consumer confidence, but said the bottleneck in global money markets would remain.

According to the Council of Mortgage Lenders, repayments on a variable rate mortgage of £150,000 should fall by about £23 after a 0.25 per cent rate cut.

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