Submitted on Friday 12th December 2008
BoE announce 0.5% rate cut
The Bank of England has today cut the UK interest rate by by 0.5% to 4.50%. The news came a day before Monetary Policy Committee usually announce the decision.
The news comes as central banks around the world such as Bank of Canada, European Central Bank, the Federal Reserve, Sveriges Riksbank and the Swiss National Bank all announced similar reductions in interest rates.
A joint statement by the central banks says: "Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.
"Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability."
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability."
This is the largest cut in interest rates since the terrorist attacks of September 11th 2001, where a similar decision was made to restore confidence. Most will not be surprised at the decision, and some, such as the Liberal Democrats had been calling for the decision to be made earlier.
Many economists feel further rate reductions will be forthcoming. Last week Michael Saunders, UK economist at Citigroup, said: "Our base case is for the MPC to cut rates to about 3.25% by late-2009, and rates may have to go even lower than that if the vicious circle between the economy and financial conditions continues to worsen."
Will the base rut cut help the mortgage market?
- It depends if lenders pass it all on but surely some will filter down
- It will stimulate Buy to Let loan amounts that are linked to tracker rates
- It will help keep suffering borrowers close to solvency
