The Bank of England (BoE) has cut interest rates to a historic low of 1.5% but the market has not responded positively to the news, falling almost 2% as 1:30pm. Today’s BoE announcement was widely expected but appears to have done little, initially, to boost confidence with the FTSE 100 falling to a level of 4421.08 as of mid day. The broader All-Share index was down 1.93% to 2213.88.
Julian Chillingworth, chief investment officer, Rathbone Unit Trust Management, said in some respects today’s move was a safe option. He noted: “Rates are now at a level not seen since the Bank’s inception in 1694. But these cuts will have little impact if they are not passed on to consumers. The main losers in all this are savers who will continue to receive paltry levels of interest on their deposits in the foreseeable future.”
Interest rates have fallen 3.5% since October and are now at levels not even seen during the Great Depression in the 1930s. Chillingworth has predicted rates are likely to fall even further in the months ahead, anticipating a level in the UK of 0.50%.
David Bexon, managing director of SmartNewHomes.com, agreed the important aspect of today’s rate cut will depend on how much of this is passed onto consumers. He said: “Going forward in 2009, we need to see Government measures put into practice that will stimulate the banks’ willingness to lend. Interest rate cuts will continue to have little effect until something is done to break the stalemate in the mortgage market.”
The Association of Mortgage Intermediaries (AMI) said it is continuing to lobby the Government to take action over the lack of liquidity in the market. It is looking for the Government to ensure sufficient funds are available for lenders and consider ways to remove ‘bad loans’ in order to restore confidence in the market place.
