In a surprising move the Bank of England has reduced interest rates to a fifty-year low. They slashed 1.5% off the rate, which means that at 3%, it is the lowest it has been since 1955.
The Bank of England may have acted in sufficient time, to boost the economy in the seven weeks leading up to Christmas. However, high street banks have not been very swift, in passing on more favorable rates to business or domestic borrowers in the past, including those with mortgages. It the interest rate cut was passed on to mortgage borrowers in full, it could reduce their repayments by approximately £90 a month per £100,000 borrowed.
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Of course, the changes will only affect repayment levels of variable rate mortgages, mortgage relief expected as UK slashes interest ratebut where applicable they will be a welcome seasonal relief. At a time when there has been so much doom and gloom with rising prices, and threats of redundancy, this seems likely to be a step in the right direction.
This latest move by the Bank of England might be considered a risky undertaking, because of inflationary pressures. The pound has been worryingly devalued against the dollar, as London has become less attractive to international investors, seeking the best return. That trend may now be set to continue; although the upside is that it makes the USA a more favorable market for British exporters.
Interest rate cuts of .25% have been the norm until recently. Now that the Bank of England is acting more boldly, it is to be hoped that these shock tactics help to bring about the start of a recovery. It is worth noting that at the same time as the latest 1.5% UK cut in interest rates, the European Central Bank has announced a cut of just .5%, and it will be interesting to see how the money markets perform over the next few days.
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