Bank of England cuts interest rates

Thursday, 8 January 2009 1:41 PM

By Sarah Garrod

The Bank of England has today cut interest rates to a historic low of 1.5%.

This is the fourth time since October that interest rates have been cut, and the first time since 1694 that they have fallen below 2%.

Commenting on the Bank of England's interest rates decision, Royal Institute of Chartered Surveyors chief economist, Simon Rubinsohn said: "The decision to lower interest rates today to just 1.5%, while welcome, is unlikely to provide any meaningful encouragement for banks to increase the availability of finance to either households or businesses.

"Indeed, the risk is that lenders are set to become even more restrictive over the coming months in the face of the worsening economic climate. With many first time-time buyers unable to find the finance to take an initial step onto the housing ladder and existing owner-occupiers needing to move similarly blighted, the time has come for the government to take direct action to restore an orderly property market."

The announcement may help those with tracker mortgages in particular Council of Mortgage Lenders director general Michael Coogan said.

"This cut is a double-edged sword for retail based lenders. While lower mortgage rates provide borrowers with the opportunity to repay their mortgage debt more quickly to reduce the term, lower savings rates impact lenders' ability to attract deposits and maintain the flow of mortgage lending in 2009," he added.

"The market is still not functioning properly and is likely to lead to a fragmented approach by lenders, as they try to balance the interests of savers and borrowers and other pressures on their businesses, in responding to today's announcement."

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