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UK interest rates make history

January 21, 2009 by admin  
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Over the past week the in the UK has made history by falling to an all time low of just 1.5 percent, which is its lowest since the Bank of England was founded over three hundred years ago. After the January meeting the Bank of England announced that were to be cut once again, and whilst the rate cut of 0.5 percent was not as dramatic as previous cuts over the past few months it saw the base rate slide to its lowest level ever.

Government officials have cut the rate in the hope that it will help to revive the economy through increasing consumer spending. Those that have benefited from the rate cut – in other words borrowers whose banks have passed on the rate cuts from the central bank – have been relieved to find themselves with a little extra money in their pockets, and bearing in mind that just over a year ago the base rate was edging towards the 6 percent mark many are now making significant savings on their monthly mortgage repayments.

It is also hoped that the lower rate of interest will help to ease the rising levels of repossessions, which the Council of Mortgage Lenders had predicted could rise to around 75,000 this year, as more and more people struggle to meet mortgage repayments. However, much of the good that has been done by the rate cut in terms of increasing mortgage repayment affordability for homeowners could be undone by rising unemployment levels, where homeowners who lost their jobs find that they have no income coming in with which to make their repayments.

There was a mixed reaction from industry groups and professionals when it came to the latest interest rate cut. Some officials felt that the latest cut was not aggressive enough and that it should have been a bigger cut. However, one official said that the latest cut had been appropriate, providing the Bank of England did not stop there and continued to cut the base rate over the coming months.

She stated: “With survey data continuing to languish at record lows – manufacturing and services surveys in the past few days have confirmed that activity is falling sharply – we see no reason for the Bank to hold back in cutting interest rates to 1% or below in the coming months.”

Another official said that the central bank was likely to be more cautious about rate cuts for the imminent future, having made aggressive cuts towards the end of last year.

He said that the bank may want to see what the effects of the most recent cuts were before cutting rates again, stating: “There is a hint in its statement that it may sit tight for a while to assess the impact of the big reductions over the last couple of months.”

Tags: Monetary Policy Committee, monetary, level, interest rate, interest rates

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