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Fair Investment sees pros and cons to Bank of England rate cut

07 February 2008 / by Joy Tibbs
Responding to the Monetary Policy Committee's (MPC) decision to cut the base rate from 5.5 per cent to 5.25 per cent, Fair Investment director, James Caldwell, suggests the reduction is good news for borrowers, but not so positive for savers.

This is the second interest rate reduction since December 6, when the rate was also cut by 0.25 per cent. There has been a lot of pressure on the Bank of England from a range of prominent business groups to lower the rate, although many had hoped for a more significant drop.

A statement from the MPC states that inflation risks have fallen since January – when rates remained unchanged – and suggests that the cut is a necessary means of stimulating economic growth. "In the United Kingdom, credit conditions for households and businesses are tightening," it explains.

"The MPC's decision will come as a relief to many," says Mr Caldwell. "A lot of people are facing higher living costs and business expenses, so the rate cut is an important step towards easing financial strain."

In light of the rate cut to 5.25 per cent, Mr Caldwell recognises that the difference for homeowners with a mortgage worth £150,000 could be more than £20 a month. Nevertheless, he suggests that this will only take effect if mortgage rates are cut in line with the new rate. "There is no point slashing rates if lenders decide to stick to existing rates," he comments.

Moreover, he points out that savers will actually be worse off following the MPC's decision. "Savers who had hoped the base rate would remain the same for another month will be disappointed by today's announcement." he said.