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"Interest rates fall to 5.5%"

By admin | January 2nd, 2008 | General

The Bank of England has announced that the base rate in the UK will be cut by a quarter point to 5.5%. In August 2006 the interest rate stood at 4.5%, but a series of five interest rates to try and bring rising inflation under control saw the base rate rocket to 5.75% within a year.

Since July 2007 the base rate has remained unchanged at 5.75%, despite calls from industry professional and consumers for interest rates to be cut. However, amidst concerns about a slump in the economy it was decided at the December Monetary Policy Committee meeting that interest rates would need to come down, resulting in the 0.25% reduction.

According to the chief economist at Lloyds TSB Corporate Markets, Trevor Williams, the decision for the Bank of England to cut interest rates had been an “incredibly tough one”. He also added that rising inflation “could easily have swayed the Bank to hold rates”.

With recent reports showing a slowdown in the economy, plummeting consumer confidence levels, and falling house prices, experts state that the Bank of England had to take action. One official stated: “It is about making sure that the slowdown, which seems to be happening, does not get out of control.”

An official from the manufacturer’s association, EEF, welcomed the move from the Bank of England, stating: “Though manufacturing remains in good health a number of warning lights for the economy are now flashing amber. This is a sensible pre-emptive move which will reassure business that the bank is on the case and help to cushion the economy from the worst effects of instability in the financial markets.”

The British Chambers of Commerce also expressed relief over the decision to cut interest rates. David Kern from the BCC stated: “A cut in rates was clearly needed to counter the growing international threats emanating from the US, and to unblock the dangerous obstacles preventing the banking system from operating smoothly.”

Tags: Bank of england, interest rates, mortgages

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