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Bank cuts interest rates to 5.25%
Source: BBC News 7 February 2008
The Bank of England's rate-setting committee has cut interest rates to 5.25% from 5.5% in an attempt to stimulate growth in the UK economy.
Analysts had widely predicted the move, which followed recent cuts in the US where the Federal Reserve had slashed its borrowing costs to 3% from 4.25%.
However, the Bank of England signalled it was unlikely to be as aggressive because of fears over price growth.
It said that the UK economy needed to slow to keep inflation under control.
"Inflation at 2.1% in December was close to the 2% target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months," the Bank's statement said.
Thursday's rate decision came shortly after E.On became the fifth major power company to raise gas and electricity prices this year.
Further cuts
The employers' organisation the CBI welcomed the rate cut and said it was pleased there had not been a bigger reduction.
"It is clear that it is a delicate balance with inflation pressures," said the CBI's Ian McCafferty.
"A quarter point now and then watching very carefully for how inflation develops in the coming months is the best strategy."
But the British Chambers of Commerce disagreed.
"Threats to growth are much more acute now than risks of higher inflation, and we would have welcomed a bold UK move to 5% today," said its economic adviser David Kern.
Mortgage rates
Some observers had voiced concern that not all mortgage lenders would pass the interest rate cut onto their customers, limiting the cut's impact on the economy.
But many banks have already said they will pass on the cut.
Halifax, Nationwide, Abbey, NatWest and Royal Bank of Scotland have announced they will reduce their standard variable rates.
Others had said in advance of the announcement that they would pass on the rate cut in full.
These include Lloyds TSB and its Cheltenham & Gloucester unit, Barclays' mortgage arm the Woolwich, HSBC and First Direct.
Many of them will not be cutting their rates for existing borrowers until 1 March, with HSBC not cutting until 7 March.
Interest rates will also be cut for savers.
