The Bank of England has cut interest rates by 1% to 2.0%, the lowest level since 1951.
A rate cut was expected by many analysts who welcomed the move as something that will help the ailing economy. The news comes on the same day that Halifax announced a drop of 2.6% in house prices in November. According to its latest survey, this figure increases the annual rate of house price falls to -14.9%.
Despite recent dramatic action by both the government and the central bank to shore up the economy, businesses and households are still finding it hard to borrow. However banks still seem to be battening down the hatches in an attempt to survive the worst financial storm for 80 years.
Pass it on
Prime Minister Gordon Brown urged banks to pass on the rate cut to their customers: "You will see interest rates at a relatively low level for some time now because inflation and the cost of oil, is coming down."
Most of the biggest banks pledged to pass on the rate cut in full to homeowners with tracker mortgages, but said they were still considering whether to do the same for borrowers paying standard variable rates. Barclays has said it would not pass on the full Bank rate cut to its standard variable rate, while Royal Bank of Scotland and HBOS said this was under review. Only HSBC of the big lenders committed itself to transmitting the full reduction to variable rate borrowers.
CML director general Michael Coogan: "The practicalities are complex, and lenders are trying to achieve a range of potentially conflicting objectives at the same time. Not all lenders are the same. It is not realistic to expect them all to react in the same way to the rate cut. To achieve its objectives to support the housing market, the Government needs to engage with all lenders, not just the very largest, and we look forward to helping with this."
Further relief for homeowners
Sean Gardner, director of MoneyExpert.com, said: "This is another massive rate cut that will bring further relief to homeowners, particularly those with tracker mortgages. And around six million of us have trackers and standard variable rates. But what we really need now is for lenders to come out of their shells and start doing what they’re meant to do – lend people money.
“And the bad news won’t stop with this move – our research shows that nearly one in three people are concerned about their debts and 27 per cent of people in debt have actually gone further into the red in the last three months. Rate cuts won’t be much help with easing the pain of credit card and loan debts.
With a base rate of just two per cent borrowing money should be cheap as chips – the problem for consumers will be finding a lender willing to part with some cash in the first place. Otherwise the base rate cut won’t make a lot of difference to real people.”
