Bank reduces interest rates by 0.25%

10 April 2008

Bank of England MPC reduce interest rates 5.0%

The Bank of England Monetary Policy Committee (MPC) has today reduced interest rates by 0.25 percentage points to 5.0% to try to kick-start the economy in the midst of the global credit crunch.

This is the third reduction in interest rates since the beginning of December.

According to analysts, the decision was driven by recent problems in money markets and recent news about the decrease in house prices.

However, the recent credit crisis, which is making funding mortgages more expensive for banks, may mean that the reductions are not fully passed on to borrowers.

Business groups have praised the decision but say that further reductions are necessary to ‘shore up’ growth.

David Kern, economic adviser to the British Chamber of Commerce, said: “It is vitally important to ensure that problems in the financial sector and in the housing market do not damage wealth-creating businesses.

“Undue delay in acting threatens to reduce the effectiveness of interest rate cuts that the MPC itself has anticipated already.”

This week, economists had been forecasting this cut in interest rates.

Martin Temple, chairman of manufacturers’ group EEF, 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.”