MAB welcomes base rate cut

The Bank of England has cut the bank base rate from 5.25% to 5%.

Brian Murphy, head of lending at Mortgage Advice Bureau, says: “The decision to reduce the base rate by a quarter point in April will not have been an easy one for the MPC to make. However, it is a necessary response to current economic growth concerns in the UK and has been widely anticipated by forecasters who are strongly aware of the sense of nervousness throughout the business community.

“With the CBI and now the IMF forecasting economic growth below that of the Chancellor’s original calculations, this worrying prediction means it was imperative for the MPC to act in order to avoid the economy stagnating.

“In addition, an injection of liquidity into the market is urgently needed to allow businesses to borrow for investment purposes, to encourage a higher level of consumer spending and instil some much needed confidence particularly within the housing market. Interest rates however do need to be controlled to keep a lid on inflation which is running ahead of the Government’s own target level of 2%.

“As with previous rate cuts, the main winners will be those on existing tracker deals. We may not see all of the reduction passed onto new borrowers in the pricing of new mortgage products as lenders continue to manage their volumes, increase their margins and reduce their risk exposure.

“I do not think that we have seen the last of the rate cuts for this year and would expect a further base rate decrease but unless there is a real deterioration in the economic outlook we may have to wait until the second half of 2008.”