Base Rate down to 2%...

Bank cuts rates to 2%By Norma Cohen

Published: December 4 2008 12:00 | Last updated: December 4 2008 12:00

The Bank of England on Thursday cut its key rate by a full percentage point to 2 per cent, equal to the lowest level since the Bank was founded in 1694.

The last time the Bank of England cut interest rates from 3 to 2 per cent was October 26 1939, after Britain entered the Second World War.

Although the country is hardly on a wartime footing, there could be disappointment that the Bank has not sought to counter growing concerns about a deflationary spiral more aggressively. The markets had begun to expect that Thursday’s move could be as dramatic as the 1.5 percentage point cut made at the Monetary Policy Committee’s last meeting in November. Early on Thursday, interest rate futures markets were predicting that the key rate would end up no higher than 1.5 per cent.

The move suggests either that the MPC is less convinced that deflation is a real possiblity than many private sector economists suggest or that it has other concerns about the impact of much lower rates, including worries over the slumping pound.

Sterling fell early on Thursday by 0.75 per cent on a trade weighted basis.

There may also be some hesitation about more aggressive rate cuts among committee members who would rather that the MPC did not use all its fire power at once, but release it sparingly as the economy deteriorates.

The cut is still very significant by historical standards; rarely has the Bank cut by more than half a percentage point at a time.

It comes after key Purchasing Managers’ Index readings for the construction, manufacturing and services sectors hit record lows in recent days, with the future orders component of each predicting that worse is to come.

In addition, interbank lending markets are understood to have seized up again after a brief breathing spell following the government’s announcement that it would provide a £37bn taxpayer lifeline to the nation’s banks. That suggests that the woes of the financial sector are still too great to allow it to resume lending to households and businesses in a more normal pattern.

Woo hoo! That means that although I’m not at work and can’t get the loads of overtime I used to, I’ll still be about even…

Not sure it’s being passed on yet :frowning:

My mortgage is a tracker linked to the Bank’s base rate, so if it’s not passed on, there will be trouble…

Mines a tracker too, so I should be celebrating. But Im not.Like I said yesterday - in the wider view its not good news. It looks like the powers that be are recognising that this downturn is a bigger event than most of us realise yet.

Oh and the bad news about tracker mortgages is that most of them have a “floor” where they cant go any lower. Not sure where my floor is though.

Sorry its not a more upbeat post!

its kinda useless if no one can get a mortgage…
what else does the base rate affect?

Talking to someone today, and the in T&C of his mortgage which is a tracker it will not track the base rate if it goes below 3%. So no help there.

that is a tracker with a collar…They are also generally capped upwards so it is only fair.

the problem I have although the fact that there is not a decent tracker mortgage on the market for new customer at the moment is that those that are not on a fix deal might just save a few quids every month until the raise the rate again but meanwhile their net worth is diminished by £1000’s every month as the property market continue its way downward…

For those of us with a small mortgage and a fixed rate for the next couple of years at 5% it hardly makes any change to us…

Ok - if you have a tracker then youre laughing :wink:

any interest rate: the base rate is what the bank of england charges and the bank you borrow from will put a bit on top, so, for example, if the Barclays lending rate on a credit card was 18%, then you would be paying Barclays 16% at the moment…(edit for clarificationBarclays rate is 18%2% goes to BoE16% goes to Barclays)

Wretched! I have no debt and I have cash savings.

There’s an element of punishment here for people like me for not having got into stacks of debt. Bit of a justice error, really. Unless, of course, banks and building societies continue to offer 5% on savings because they need the liquidity… but then, mortgages wouldn’t be less than 6%. What a mess.

Still not happy as my morgage hasn`t gone down with it.