Pressure On For Interest Rate Cut
With the turmoil in the money markets and UK banking system over the past few weeks, along with the continuing slow down in the economy and struggling housing and loan markets, there is an increasing amount of pressure being placed on the Bank of England to cut the base rate of interest sooner than was expected.
It was widely anticipated that the Banks’ Monetary Policy Committee (MPC) would cut interest rates for personal loans and mortgages in their meeting in November, however, following recent events it is now expected that we could see a rate cut this week, when the MPC meets tomorrow (Thursday).
The MPC has resisted cutting interest rates since April this year, when it was reduced from 5.25 per cent to 5.00 per cent, but it is now widely felt that a cut is needed to help the struggling economy.
The Confederation of British Industry (CBI) claims that a cut of 50 basis points, or one half of a per cent is needed, double the amount of recent cuts. John Cridland of the CBI said “In the light of the current turmoil in the markets, the damage to confidence and implications for the real economy, the CBI believes that the Bank of England should cut interest rates by half a point when it meets on Thursday.”
Although those individuals with a fixed rate homeowner loan will not benefit from any rate cuts, those people with variable, or tracker rate mortgages and loans should see their monthly repayments reduce slightly if interest rates are actually cut, helping to ease the burden of the monthly budget.
Most borrowers would like to see an immediate cut of half a per cent, however it seems more likely that the MPC will reduce rates by a quarter of a per cent this month, followed by further cuts in November and beyond. We shall wait and see what tomorrow brings.
Edit – Since the original publish of this article (Wednesday), the Bank Of England has announced a reduction in the Base rate of interest by half of a percent, bringing the current rate down to 4.5%.
