Bank interest rate drops to 5.25%

Posted on 7 February 2008 by Charcol

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As widely anticipated, the Bank of England has lowered the Bank interest rate to 5.25%.

The 0.25 percentage-point reduction comes after recent figures showed a marked slowdown in mortgage lending and static house prices. The decision means that the cost of borrowing money will go down, stimulating spending, but also that the returns on savings will fall.

The Bank has been under increasing pressure to reduce the rate after its nine-member Monetary Policy Committee (MPC) opted to leave it unchanged in January. The British Retail Consortium has made repeated calls for a further cut, after comparatively weak high street sales at Christmas.

In January, the US Federal Bank stunned analysts with an unscheduled 0.75 percentage-point reduction in its lending rate, but economists have stressed that the Bank of England had no need to make such a dramatic reduction.

Howard Archer, chief UK economist at Global Insight explained: "Latest data and survey evidence indicate overall that while UK growth is currently clearly slowing appreciably, it is not collapsing."

However, some analysts have predicted that the Bank will reduce the rate to 4.0% during 2009 to avoid a full-blown recession.

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