Shock at 1.5% interest rate cut by Bank of England
- 00:00:59
- ITN
Shock at 1.5% interest rate cut by Bank of England
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 because of the "substantial risk" of failing to meet its 2 per cent inflation target. Traditionally, a cut in rates has also pleased homeowners but lenders have been reluctant to pass on recent reductions in full. Interbank lending rates - a key factor in pricing fixed-rate deals - remain high. The drop, which takes the base rate to 3 per cent, 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."
ITN | November 6, 2008
