- 07
- Feb
The Bank of England’s monetary policy committee (MPC) has elected to reduce the base rate of interest, it has emerged.
In its monthly meeting the MPC today (February 7th) decided to cut rates by a quarter of a percentage point to stand at 5.25 per cent. The news follows the committee’s maintenance of interest rates last month and its 0.25 per cent reduction in December 2007. Now, the rate is at the same level as recorded just over two years ago in January 2006.
Following the move, should banks and other money lenders decide to pass on such cuts, homeowners may witness a fall in their monthly mortgage repayments. In turn this could allow them to meet other demands on their finances, for example personal loan and credit card repayments, household bills and council taxes, with greater affordability.
Commenting on the MPC’s decision, Mike Naylor, personal finance expert at uSwitch, said: “Today’s decision to move the base rate back to where it was in January 2006 is only good news for consumers if banks do the right thing and pass it on. Even so, it could still be too little too late for some. People are currently paying out 35 per cent of their monthly take home pay on mortgage repayments and ten million consumers already feel that their current level of overall debt is unmanageable.”
Mr Naylor pointed out that today’s reduction, the second cut in three months, will not provide a “quick-fix solution to a complex economic problem”. Citing research by the price comparison website he stated that just under one in ten (nine per cent) of people are in a situation where they might need to take on further credit to meet current demands on their finances. Meanwhile, some 5.4 million had missed payments on bills and debts as of the end of last year.
He added: “On an average mortgage, consumers on a tracker deal will be just under 50 pounds a month better off following the two base rate decreases.” Although the uSwitch expert pointed out that this may not seem to be a lot money “in the grand scheme of things”, for those people who are struggling with money management such a sum could well be “the difference between keeping afloat or going under”.
Barry Naisbitt, chief economist at Abbey, claimed that the MPC’s cut, although “widely expected”, is an indicator of a slowing growth in the property sector and general economy. As such, he stated that the reduction may “help to bolster consumer confidence” and support the financial market during a period of general uncertainty. Mr Naisbitt added that following a number of recent price rises by energy providers, the Bank is likely to detect an increase in inflation in the coming months.
Following on from today’s reduction, those who are concerned about how they are going to supplement their spending for the rest of 2008 may wish to apply now for a cheap loan. Last month, Ray Boulger, spokesperson at John Charcol, claimed that there is “further bad news on the inflation front” for many Britons, following npower’s decision to increase prices by 17 per cent. However, for people concerned about paying energy bills and meeting other sources of financial demand as the year progresses, a low-rate personal loan may prove to be of assistance.
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