Bank acts to boost spending
Dec 7 2007 by Paul James, The Journal
THE Bank of England yesterday gave homeowners an early Christmas present by cutting interest rates for the first time since August 2005.
Announcing the 0.25% reduction to 5.5%, the Bank said it was concerned recent turmoil in the financial markets could threaten growth prospects in 2008.
The likes of Halifax and Nationwide, the UK’s two biggest mortgage lenders, along with internet and telephone bank First Direct, responded immediately to the decision by passing on the rate cut in full – though Northern Rock said its rates were under review.
The quarter point reduction to 5.5% would knock around £16 a month off the cost of a typical £100,000 mortgage.
Home-movers who borrow nearly £140,000, will see their payments come down by £23 a month to £1,035, while those who have borrowed heavily with a £250,000 home loan will be more than £40 a month better off.
Financial adviser David Gunning, director of 4 Insight 2 Legal and Financial, said it was a positive move by the Bank but said homeowners were unlikely to notice a difference in their pocket until February. Business leaders said the cut could lead to higher spending in the run-up to Christmas.
The move follows five rises since interest rates were 4.5% in March last year, which have been accompanied by higher food, fuel and energy bills. Confidence has also been shaken by this summer’s credit crunch, which has resulted in much tighter lending conditions.
The Bank also said in a statement that there were signs growth has begun to slow and people were spending less.
Mr Gunning said: “It’s a positive move but something people won’t feel until January or February. Everyone will be skint in January after Christmas and a reduction in mortgage payments won’t probably hit the system until February, by which time there might be another rate cut.”
Richard Bottomley, vice-president of the North-East Chamber of Commerce, said: “Cutting rates before Christmas is a bold move by the Bank, but one which will be greeted with enthusiasm by businesses – retailers are likely to benefit from a late boost to sales over the festive period. The Bank will need to work hard to keep the economy growing while at the same time managing inflation as pressure is coming from areas such as oil and food prices.”
