Bank of England cuts rates to 5.5%

Helen Pow - 06-Dec-2007
The Bank of England’s monetary policy committee today voted to reduce interest rates from 5.75 per cent to 5.5 per cent.

Council of Mortgage Lenders director general Michael Coogan says: "A reduction in interest rates is exactly what the market needs and will benefit consumers. This will reduce the risk of payment shock for the 1.4 million borrowers coming off fixed rates in the next year.
But he says the authorities may need to intervene more aggressively to open wholesale funding markets as there is a real need to minimise the shortfall between the demand for mortgages and lenders' capacity to supply them.

RLAM economist Ian Kernohan says: "Today's move was not entirely unexpected, although it was a very close call. I expect the general groundswell of opinion in favour of a cut played a part in the decision. No doubt there will be some ritual bleating about the MPC cutting rates at a time when inflation is above target and set to rise further, but monetary policy is supposed to be pre-emptive. There is more than enough tightening already in the system to bring inflation down later next year."

Mortgage Advice Bureau head of lending Brian Murphy agrees the cut comes as a surprise considering the rate of inflation has again creeped up over the 2.1 per cent target level.

He says: "There has been a considerable slowdown in the housing market over the past few months but this slowdown has almost been too dramatic and a base rate decrease is long overdue. I expect there will be more to come during early 2008."