Interest Rates cut by the Bank fo England
- 00:02:01
- ITN
Interest Rates cut by the Bank fo England
Interest rates have fallen to an all-time low after being cut by 0.5 per cent to 1 per cent in a bid to boost the deteriorating UK economy. The decision, which follows last month's 0.5 per cent cut by the Bank of England, comes after the UK's slide into recession was officially confirmed and an International Monetary Fund (IMF) forecast that the UK would suffer more than all other advanced nations in the worst global slump since the Second World War. Immediately after the announcement, four of the UK's biggest mortgage lenders said they would be passing on the latest interest rate cut in full to their standard variable rate customers. Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, Nationwide and Halifax have had little choice to pass on the cut after pledging that their rate will never be more than a percentage above the base rate, while the Woolwich has joined them after being one of the many lenders who failed to pass on January's reduction. They were joined by Britain's sixth biggest building society Skipton, which is also passing on the full 0.5 per cent cut to its SVR customers. But other lenders were slower to respond to the latest reduction, instead saying their SVRs were "under review". While the series of dramatic rate cuts - from 5 per cent last October - have been good news for most borrowers with tracker mortgages - which should automatically fall into line - savers have joined most SVR customers in being dealt a savage blow. This week the Building Societies Association (BSA) urged the Bank to leave rates unchanged over fears that another cut would further hit savers, who have seen returns dive by 75 per cent in recent months. However, around 300,000 customers with these deals will not benefit from the cut, as so-called collars have already kicked in on their loans, so the rate they pay cannot fall any further. As rates edge closer to zero it is thought likely the Bank will resort to more unorthodox measures to combat the UK recession. Economists predict a bolder strategy from the Bank in coming months, raising the possibility of so-called quantitative easing - increasing the supply of money in the economy to buy assets from banks, or boosting the reserves that the banks hold on deposit in the Bank of England. The Government's second bank rescue plan included a new £50 billion fund created for the Bank to use to buy up private sector assets in order to free up lending and kick-start the economy. The MPC could also ask for powers to tap into the fund as it strives to combat deflation.
ITN | February 5, 2009
