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Bank cuts base rate to 5.5%

Thursday, 6 December 2007 12:00 AM

The Bank of England has cut interest rates by 0.25 per cent.

Following a decision at midday today by the monetary policy committee (MPC), rates were cut for the first time since August 2005, down to 5.5 per cent.

"Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow," explained the MPC.

"Forward-looking surveys of households and businesses suggest spending is moderating, broadly in line with the projections contained in the November inflation report."

The change has met with widespread support in property markets.

"Borrowers will be breathing a huge sigh of relief today," said Warren Bright, chief executive of PropertyFinder.com.

"The housing market has been slowing for some time and the rest of the economy is now following. The very public plight of lenders struggling to finance themselves has hit confidence hard - and it was high time the Bank of England made a move to protect the economy."

Fears of slowing economy and tighter lending conditions have prompted action, according to Global Insight.

"The recent flurry of markedly softer data and survey evidence relating to the services sector, consumer confidence and the housing market has clearly raised fears within the MPC there is an increased risk that growth could slow sharply over the coming months," said Howard Archer, UK economist for Global Insight.

"The Bank of England's statement also reveals tighter conditions in credit markets also prompted the MPC into acting, despite concerns about ongoing inflationary pressures stemming from elevated energy, food and commodity prices, some signs of pay picking up, resilient inflation expectations and possible capacity constraints."

However, further cuts are required according to some.

"The MPC's decision to cut rates today is very welcome and we are now looking for the next cut to follow soon to help rebuild consumer and market confidence.

"We need to avoid the current property market doldrums having a wider detrimental impact on the economy," said Ross Bowen, Managing Director of estate agent, Connells.

This view was supported by the Royal Institution of Charter Surveyors (Rics).

"We expect the Bank to follow up today's cut with a further reduction early in the new year," said RICS chief economist, Simon Rubinsohn.

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