Member Article

Interest rates cut to 5%

UK interest rates were cut this week to 5% by the Bank of England. The quarter of a percentage point reduction had been expected as the Bank’s Monetary Policy Committee (MPC) has come under pressure to cut interest rates following the biggest fall in house prices for 16 years.

Figures from the Halifax earlier in the week showed that UK house prices fell by 2.5% in March - a devaluation of almost £5,000 for a typical property, and today’s MPC decision will be seen as some relief to borrowers feeling the effects of the credit crunch and inflationary pressures.

Region responds

Richard Bottomley, president of the North East Chamber of Commerce and senior partner at KPMG in Newcastle, said: “As the world economies continue to slow down, this decision provides a welcome boost to the UK economy. Here in the North East the news will be particularly well received by the manufacturing sector, which is facing higher energy costs and tightening of credit in financial markets.

“We are pleased that the Bank of England has decided to reduce interest rates which will enable us to maintain and stimulate economic growth in the region and keep our rate of growth above the national average and many other UK regions.”

Sarah Green, Regional Director CBI North East said: “This cut was badly needed, and will be welcomed by a business world that is feeling the pressures of the credit crunch and of slower growth. Higher interbank and mortgage lending rates are dampening investment, consumer demand and economic activity, and today’s cut should ease conditions a little.”

More is needed

Alan Hall, Director of Manufacturer’s organisation EEF Northern, said: “So far the Bank’s gradual approach to cutting rates has been the right one but, given how quickly the situation is changing, there are now greater risks to business and consumer confidence. The Bank must be ready to tear up the current script and respond if necessary with swift and decisive action.”

Steven Marks, lending executive at Newcastle Building Society, said: “With the continuing impact of the global credit crunch and the slowdown in the housing market, this rate reduction was very much expected, but it is unlikely to have as great a bearing on market conditions as both the MPC and the Government would like.

“We feel further action will be required to stimulate and build some momentum in the housing market - the urgency of taking such action now overrides any concerns over the inflation rate rising as a result of interest rate cuts, and we would expect to see at least one more rate cut later in the year.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .