The Bank of England announced earlier this week that the base rate was being cut by 0.25%, taking the base rate from 5.25% down to 5%. The announcement came after the Monetary Policy Committee meeting on Thursday, but did not come as a surprise to many industry experts who had been expecting the bank to cut rates as a result of the slowing economy and the credit squeeze.

Most analysts had originally been predicting that the next rate cut would come in May until recently. However, in a recent report the governor of the Bank of England, Mervyn King, announced that the likelihood of an April cut was strong because of the ongoing credit crunch, which has been affecting affordability for homeowners and has therefore been affecting the economy.

Experts have now started speculating over when the next interest rate cut will be, as many expect the base rate to fall to 4.5% or even 4% this year. One industry official said: ‘We forecast the next 25 basis point cut to 4.75% to occur in June or July and anticipate that interest rates will fall to 4.25% by the end of 2008 and to 4.00% in the first quarter of 2009.’

Another industry official said: ‘This cut was badly needed. Higher interbank and mortgage lending rates are dampening investment, consumer demand and economic activity, and today’s cut should ease conditions a little. Weaker economic growth through the year ahead will help keep inflation under control over the longer term, so a reduction in rates now does not compromise the Bank’s stance on inflation.’

A number of lenders have already passed the full rate cut onto consumers by reducing their variable rates by 0.25% in line with the base rate cut, but some have continued to hike up their interest rates despite the base rate cut.

Recent additions:

•  Mortgage approval levels remain on a low
• Interest rate cut becomes more likely due to tighter lending conditions
• Huge drop in range of mortgage deals available
• Disaster could lie ahead for those on interest only mortgages

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