Belfast Telegraph

Bank of England cuts rates to 5%

Move to offset strains on borrowers

By Gary Fennelly

The Bank of England has cut UK interest rates from 5% from 5.25% amid signs of gathering economic gloom.

It is the central bank's third cut in interest rates since early December.

In a statement the Bank said: "Credit conditions have tightened and the availability of credit appears to be worsening.

"While the recent depreciation in sterling will support net exports, the prospects for output growth abroad have deteriorated.

"This should help to keep domestic inflationary pressures in check in the medium term."

The Bank faces a balancing act to keep inflation on track for 2% over the medium term.

It said: "On the upside, above-target inflation this year could raise inflation expectations so that, in the absence of some margin of spare capacity, inflation would remain above the target.

"On the downside, the disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target."

David Kern, economic adviser to the British Chambers 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."

Several mortgage lenders, including Halifax, Nationwide and the Woolwich, said they were cutting their standard variable rate in line with the Bank’s move. However many banks have just raised rates on the fixed rate products popular with borrowers.