Interest rates slashed to 53-year-low
- 00:01:16
- ITN
Interest rates slashed to 53-year-low
Interest rates have been cut by a whopping 1.5 per cent, bringing them to their lowest level since 1955. The Bank of England said it made the move, which takes the base rate to 3 per cent, because of the "substantial risk" of failing to meet its 2 per cent inflation target. Traditionally a cut in rates has pleased homeowners, but lenders have been reluctant to pass on recent reductions as interbank lending rates - a key factor in pricing fixed-rate deals - remain high. But if the rate is passed on in full, those borrowers on standard variable rate mortgages will see the average monthly payments on a £150,000 mortgage fall by around £138. Lloyds TSB, having pledged that its standard variable rate (SVR) will never be more than 2 per cent, has left itself little option. But only 57 of the 96 lenders that have an SVR have passed on October's reduction, with many failing to pass on all of the 0.5 per cent. New borrowers are unlikely to see their rates fall in line with today's cut. Lloyds TSB and nationalised bank Northern Rock pulled their entire tracker ranges on Wednesday to reprice them. Abbey, Halifax and Nationwide have also been repricing their deals. The rate cut was more than expected by business leaders who broadly predicted a reduction of 1 per cent after last month's 0.5 drop in response to the global banking crisis. But the Bank's bold approach will be welcomed warmly by the business community as the full extent of the economic slowdown becomes apparent. Federation of Small Businesses chairman John Wright also welcomed the cut, saying: "We called for a bold 1 per cent cut and this unexpectedly large rate cut will make an enormous difference to small firms and will put money in people's pockets before Christmas. The cut amounts to a generous saving for small firms of £750 million on loans and overdrafts. "But all this will come to nothing if the banks do not follow through and pass on the rate cuts to those small firms struggling with increased costs of credit." CBI director general Richard Lambert said: "This is a bold and welcome move and achieves what the CBI had been calling for. "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 should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers." British Retail Consortium director general Stephen Robertson said: "This is the kind of shock tactic that could get the economy's heart beating again." Liberal Democrat Treasury spokesman Vince Cable welcomed the move but said there was still scope for further cuts in interest rates. He said: "Naturally we welcome this bold move, which now amounts to a 2 per cent cut in rates in under a month. This is exactly what we've been calling for." But he warned: "This may not be the end of the story. Further interest rate cuts may be needed if it becomes clear this recession is turning into a deep slump."
ITN | November 6, 2008
