Bank of England base rate cut to 2%

4 December 2008

The Bank of England today lowered its base rate to 2% – the lowest rate in over half a century.

The cut was in line with a majority of analysts’ predictions, following November’s unexpected 1.5% base rate cut. Many economists had argued that at least a 1% cut would be required to stave off a deep recession.

It is thought that the Bank of England could make further base rate cuts in 2009, with a number of experts suggesting that a 1% base rate may eventually be required to maintain economic stability. Some economists have even predicted a 0% base rate by the middle of next year.

However, mortgage experts have warned that lenders may be reluctant to pass on the full base rate cut. Indeed, while the response to last month’s base rate cut was largely positive, mortgage advisers John Charcol have said that only 10 out of 69 mortgage lenders passed on the last two base rate cuts in full to homeowners on their standard variable rate mortgages.

It is unclear how the base rate cut will affect interest rates on other forms of credit, such as personal loans, which have risen on average since the Bank of England started cutting its base rate in April 2008.

A mortgage and loans expert for Think Money commented: “This month’s Bank of England base rate cut has been widely anticipated – now it is just a matter of how lenders respond.

“A relatively high LIBOR rate has deterred most lenders from passing on previous base rate cuts in full, especially for personal loans. But if lenders start lending to each other at levels closer to the 2% base rate, we could well see more comprehensive cuts in the interest rates they’re offering on both loans and mortgages.”

Tags: bank of england, base rate, bank of england base rate, base, rate, libor

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