Today, the Bank of England’s Monetary Policy Committee met and agreed to cut interest rates by a full 1 per cent as predicted by experts earlier this week, taking them from 3 per cent to just 2 per cent – this is the lowest level since 1951.
Since the Bank of England was founded in 1694, interest rates have never been lower than 2 per cent. This decision has been taken in an effort to stop the UK from sliding into an economic recession.
Data received this week has only shed gloomy light on the situation as the Halifax has shown house prices have dropped by 2.6 percent – good news for some but bad news for many – and manufacturing and services surveys have shown their industries are feeling the pinch too.
We are seeing several large retail chains like MFI, The Pier furniture store and even Woolworths falling into administration as they failed to safeguard themselves against economic tides such as this.
Economists will surely welcome the news of an interest rate cut from the Bank of England.
Hetal Mehta, Senior Economist from the Ernst & Young ITEM Club, said: “You could almost hear the sigh of relief up and down the country when the Bank of England’s Monetary Policy Committee announced a 100 basis point cut in the base rate. As was the case last month, it was almost certain that interest rates would be slashed, but the big question was by how much. ITEM believes that the MPC was right to cut the base rate of interest to 2 per cent – anything less would have been a missed opportunity.”
Those on variable or tracker rate mortgages will definitely be breathing a sigh of relief as this interest cut could save £200 per month on a £200,000 repayment mortgage and even more on an interest only mortgage. Mortgage lenders also appear to be getting behind the move as the Halifax has announced it is scrapping all collars on its mortgages, which normally mean the lender would not have to pass on a rate cut taking interest so low, and Lloyds TSB has also announced it will pass on the full interest rate cut.
Let’s hope more mortgage lenders follow suit.