BRITAIN’S base interest rate was slashed to 2% yesterday in a desperate bid by the Bank of England to kick-start the economy.
The bank’s bold move provoked a mixed reaction from business people and professionals in Merseyside.
The bank’s Monetary Policy Committee slashed interest rates by 1% as policymakers stepped up their battle to stave off a deep recession.
Yesterday’s 1% cut follows a 1.5% reduction last month and takes the bank rate from 3% to 2% – a level not seen since 1951, and equal to the lowest level ever seen in the UK since the Bank of England was formed in 1694.
Britain’s biggest mortgage lender, Halifax, confirmed it would pass on the cut to its 600,000 borrowers with base rate tracker deals. But it is unlikely that all borrowers with standard variable rate mortgages will see the full benefit, despite increasing pressure from the Government.
While the rate cut is good news for some borrowers, it is bad news for savers.
Adrian Coles, director general of the Building Societies’ Association, said: “Savers will be disappointed at the news.
“Building societies which pass on both this base rate reduction and the last could halve the interest they pay to investors in a very short period of time.”
Neil Blankstone, a director of Liverpool stockbroker Blankstone Sington, told LDP Business: “This puts money back into peoples’ pockets, but the key factor is what it will do to LIBOR (the rate at which banks lend to each other).
“We are probably not going to get a proper steer on that until February next year, when the banks reporting season comes around again.”
Frank McKenna, chairman of lobby group, Downtown Liverpool in Business, agreed that people needed to be patient while the banks got back on track:
He said: “I think it’s clear that the Government and the Bank of England are doing everything they can to revive the economy.
“But we also have to remember that it was only four months ago that some experts at the Bank were considering interest rate rises to combat inflation.
“What I think we need now is a period of stability.”
Ian Goalen, office senior partner at KPMG in Liverpool, believes rates may fall even further. He added: “The battle against deflation is on. Rates are set to fall further – and soon, as policymakers try to counteract the powerful contractionary forces at work in the economy.
“However, it is unlikely that low interest rates alone will achieve the desired result and the UK may have to follow the US with measures, such as buying up mortgage and commercial debt, to free-up lending and re-liquefy the financial system.”
Prime Minister Gordon Brown urged banks to pass on the rate cut in full to homeowners and businesses.
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