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YOU ARE HERE: Home > News > 2005 > Bank of England Cuts Rates: When Will It Cut Again? |
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Bank of England Cuts Rates: When Will It Cut Again?At midday the Bank of England’s Monetary Policy Committee (MPC) announced the widely anticipated cut in the base rate when it reduced it by 25 basis points to 4.50 percent from 4.75 percent, the rate it has stood at since August 2004. However, the cut is not expected to be the first in a series of aggressive cuts. Much expected by lenders, savers and economists alike, the cut, which is the first since July 2003 when rates fell to 3.50 percent., has come as concerns over the continuing recession in manufacturing grow and in an attempt to moderate uncertainty over consumer weakness, despite a recent uptick in consumer spending. But the MPC are not expected to be in any rush to cut rates again. With the headline rate of inflation, on a 12-month basis, at the 2.0 percent target in June, many economists feel that the base rate may only need to fall to 4.00 percent before the rate cuts stop. The MPC decision came at the 100th meeting of the committee since it became independent. Seen as an insurance cut, designed to assist the weak parts of the economy, it is expected that the MPC will be keeping a close eye on all the key data, including consumer debt and spending. But borrowers should not see today’s reduction in rates as an opening of the rate-cutting flood gates. In fact, many commentators believe the next cut may not come until 2006. For those with loans and mortgages at fixed rates, the cut will make no difference. But for those with tracker and other variable rate mortgages the 0.25 percentage point cut means a saving of nearly £21 a month on a £100,000 interest only mortgage. "If the cut means you have a little bit more money in your pocket because you are paying less interest, that is great news", says Stephen Rose, director at the Debt Advice Bureau. "Lower rates provide borrowers with the opportunity to pay more off their underlying debt each month and so get debt free faster". That is good advice as the MPC waits for more data on the economy. If the economy does deteriorate and money gets tighter, you’ll be glad if you have less debt. If the economy improves and rates stabilise, you’ll be glad you owe less as your interest charges will be less. Whatever happens with the economy and whatever decisions the MPC make, there is one constant . . . owe less and you’ll pay less interest.
Published Thursday August 4th 2005, 12:35pm |
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