In an attempt by the Bank of England to give the economy a boost in the face of the global credit crunch, the UK interest rates have been cut from 5.25% to 5.00%.
This is the third time that the central bank has cut the interest rates in the UK since early December and it was an action that was widely forecast by economists.
The Bank has been concerned that disruption in financial markets and tighter credit conditions could lead to a wider economic slowdown.
The largest mortgage lenders responded quickly, saying that their customers who pay variable rates will have the cut passed directly onto them, in full, meaning that they will benefit from the whole cut of a quarter of a percentage point.
The nine lenders that have said they will do this are the Halifax, Nationwide, Bank of Scotland, Barclays, Britannia, Lloyds TSB, Cheltenham & Gloucester, First Direct and Woolwich.
Expert reaction to the 0.25% cut in interest rates:
Lloyds TSB, Trevor Williams, chief economist was amongst those who expressed concern for the inflationary connotations of the cut.
"If the MPC (Monetary Policy Committee) had kept rates on hold, it would have left the economy exposed to a slowdown. But by cutting rates, it has left inflation free to rise even further beyond its target."
Further concern came from Angus Campbell, head of sales at Capital Spreads, who was unsure of the MPC's tactics as well as the integrity of their motives.
"It has bowed to pressure from the City, the IMF and even our Prime Minister, so who knows where rates will go from here. Most expect further cuts later this year, but the Bank must retain its independence and do what is expected of it - keep a cap on inflation."
However, Richard Lambert and a number of other analysts have noted that the "weaker economic growth through the year ahead will help keep inflation under control over the long term."
Whilst Lambert added that "today's cut should ease conditions a little" with regard to "dampening investment, consumer demand and economic activity," more must be done to stabilise the economy.
"Although interest rates are a very useful tool," he commented, "the Bank [of England] also has to look at other steps to unblock credit flows."
Andrew Smith, the chief economist at KPMG, showed his concern for the effectiveness of the cut, stating that "the medicine may not get through to the patient."
"With the impact of monetary policy now blunted, rates will ultimately have to fall further to achieve the same result. Rates are heading to 4% over the next 12 months."
Smith's notion of further rate cuts being necessary was echoed by a number of his peers. Roger Bootle, economic adviser to Deloitte sees today's cut as "another step towards rates eventually falling to 3.5%."
"Rates will fall to 4% by the end of this year and further to 3.5% in 2009." Bootle continued.
We think yesterday's base-rate cut is good news for up to half of Britain's 11.8 million mortgage borrowers. About 20 per cent of borrowers currently pay their lender's standard variable rate - though not all providers have yet said they will cut this - while a further 30 per cent are on tracker deals, where the rate they pay moves up and down automatically in line with base rates.
However, 50 per cent of borrowers are on fixed-rate deals, which are unaffected by the base rate cut. Once these short-term deals expire - about 1.5 million will do so this year - borrowers will either have to arrange a new fixed rate, facing rising prices, or move on to their lender's standard variable rate, which in most cases will be significantly more costly than their current deals.
Even though the market is tighter you can still find a good mortgage deal, especially if you use an impartial adviser who can search all mortgage lenders, some you may never have heard of, to find the best deal for your situation.
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