The Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 0.5 percentage points to 0.5%, and to undertake a programme of asset purchases of £75 billion financed by the issuance of central bank reserves.
World activity continued to weaken, reflecting both depressed confidence and the persistent problems in international credit markets. In the United Kingdom, output dropped sharply in the fourth quarter of 2008. Business surveys continue to point to a similar rate of contraction in the early part of this year. Unemployment has risen markedly. Credit conditions faced by companies and households remain tight.
CPI inflation declined to 3.0% in January. The depreciation of sterling is adding to imported cost pressures, but pay pressures continue to wane.
The Committee judged that this reduction in Bank Rate would by itself still leave a substantial risk of undershooting the 2% CPI inflation target in the medium term. Accordingly, the Committee also resolved to undertake further monetary actions, with the aim of boosting the supply of money and credit and thus raising the rate of growth of nominal spending to a level consistent with meeting the inflation target in the medium term.
On the 4th December 2008 the Bank of England reduced interest rates by a further 1% bringing interest rates to 2% the lowest in more than half a century.
The cut has been made in an effort by the government to reduce the onset of the looming recession and to try and kick start the UK's economy. The PM, Gordon Brown, has urged lenders to pass the rate cut on to their customers. At present only a handful of these landers have said that they will pass on the rate cuts to their customers.
HSBC, Bristol & West, and Lloyds TSB, which also owns Cheltenham and Gloucester, have said that their standard variable rate mortgages will be cut by the full 1%. However, HBOS the UK's largest bank and part funded by the tax payer has said that they will not be reducing their rates by the full 1%, in fact reducing only by 1.15 percentage points.
Customers with tracker mortgages from Halifax will benifit in full from the recent reduction in the base rate.
Today the Bank of England have announced that interest rates are to be cut by 1.5%, higher than expected.
This has brought interest rates to 3%, how will this affect lending and the financial crisis as a whole? See the thread on Interest Rate Cut in the Finance board for further discussion
