Interest rates cut to 2%

4 December 2008

The Bank of England has cut interest rates by 100 basis points today to 2%, the lowest level for more than half a century.

The central bank’s Monetary Policy Committee (MPC) has shaved 3% off interest rates since October, and experts predict rates will fall even further in the new year.

Although the UK will now enter 2009 with interest rates at just 2%, the extent to which consumers benefit remains to be seen.

According to data provider Moneyfacts, 75% of mortgage lenders failed to pass November’s 1.5% cut on in full to standard variable rate borrowers. However, 92% of saving providers slashed rates by 1.5% or more in light of the 150 basis point reduction.

Michelle Slade, analyst at, says: “Both borrowers and savers have been penalised following the last base rate cut.”

Lloyds TSB and Cheltenham & Gloucester have already promised to pass on December's base rate cut in full to SVR borrowers as well as tracker customers.

The banks, which are part of the same group, say they will also cut rates on new tracker products "as soon as possible".

What does the interest rate cut mean for your finances?

Meanwhile, the latest house price date from Halifax shows property price have fallen by nearly 15% since November last year bringing the average value back to levels not seen since July 2005.

Martin Ellis, chief economist at Halifax, says: "The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand. These factors are major contributors to lower house prices and activity.”

However, Ellis says there are signs that pressure on incomes are beginning to ease as inflation falls back down from its September high of 5.2%.

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