The MPC cut interest rates to 5.25% in an attempt to boost the UK's sluggish economy.
In a move that was largely anticipated by the financial community, at noon today the UK’s Monetary Policy Committee voted to drop the Bank of England base rate by 0.25% to 5.25%.
This reduction follows the more dramatic rate cut imposed in the States by the Federal Reserve last month and has been made in response to the slowing economic climate that’s hitting the UK.
Compared to the US cut which took interest rates from 4.25% to 3% in one move, the MPC’s 0.25% reduction seems conservative to say the least. However, the Bank of England explains that caution is necessary to balance an economy that’s seeing rising prices hitting many sectors.
As most financial institutions will drop their lending rates to mirror the change this cut is good news for both home owners and those looking to borrow on the unsecured market as it should help to make mortgages and personal loans that little bit more affordable.
HSBC, First Direct, the Woolwich and Lloyds TSB all announced plans to pass the full benefit of any Bank of England rate reduction on to their mortgage customers in advance of today’s MPC announcement. However, Halifax, Nationwide, the Royal Bank of Scotland, Natwest and Abbey have now followed suit and affirmed plans to reduce their standard variable rates.
While the MPC’s decision will help to cap the rising cost of living for many people, the news isn’t so good for those looking to make a profitable return on cash based investments especially at a time when the many are starting to consider fixing funds in ISAs.
While the MPC hope that this rate cut will be enough to buffer the slowing economy, if things don’t improve they may have no choice but to reduce interest rates further when they meet next month.
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