Respite for homeowners as interest rates slashed

Published on Wednesday 8 October 2008 10:30

HOMEOWNERS and businesses were given an unexpected boost today after interest rates were slashed 24 hours before a decision was due.

The Bank of England's monetary policy committee started its two-day meeting this morning and was due to announce its decision at midday tomorrow.

But it has acted quickly to slash 0.5 per cent off interest rates, taking them down to 4.5 per cent, in a bid to boost the economy.

It comes after the Government's announcement this morning that it has created a package of measures worth 250 billion to tackle the financial crisis, including 50bn that it will invest in shares in leading banks.

The cut will mean a saving of 47 a month on a 150,000 mortgage if the reduction is passed on in full by lenders

The Bank's half-point cut is the first such move since the aftermath of the 9/11 terror attacks in November 2001.

It is acting to cut rates alongside the European Central Bank, the US Federal Reserve and central banks in Canada, Sweden and Switzerland.

Capital Economics' Julian Jessop said: "Today's co-ordinated half-point rate cuts from all the major central banks will provide at least a temporary boost to confidence but we fear that there is still a lot more work to do.

"For a start, the fact that the central banks have had to take such extreme measures underlines how bad market conditions have become."

The Bank welcomed the Government's rescue scheme today, adding that a "significant increase" in bank capital was also needed alongside lower rates to tackle the current problems in financial markets.