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Pastimes : The Hot Button Questions:- Money, Banks, & the Economy -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (1169)	11/6/2008 2:05:54 PM
From: maceng2	Read Replies (1) \| Respond to of 1417

Interest rates slashed to 53-year low By Russell Lynch, PA Thursday, 6 November 2008 independent.co.uk Interest rates were today slashed to a 53-year low to fight off recession - but fears were growing that hard-pressed homeowners would fail to reap the benefit. The shock 1.5 per cent cut by the Bank of England's Monetary Policy Committee (MPC) is the biggest move since March 1981 and brings rates to 3 per cent - last seen in 1955. Stock markets were stunned by the size of the cut and experts predicted rates could reach an all-time low of 1.5 per cent by mid-2009 as the Bank desperately bids to ward off a prolonged slump. But a host of lenders - including the UK's biggest building society Nationwide - rushed to withdraw their tracker deals from the market. Borrowers on standard variable rate mortgages will see average monthly payments on a £150,000 mortgage fall by around £138 - if the cut is passed on in full. But lenders shaken by banking turmoil have been reluctant to pass on cuts in full as interbank lending rates - key in pricing fixed-rate deals - remain high. Chancellor Alistair Darling insisted it was "essential" that banks pass the cut on to customers. "I think it's essential that the banks do pass on the benefit of lower interest rates to people and to businesses," he said. Shadow chancellor George Osborne said the extent of the cut underlined the serious economic trouble ahead for the UK. "This is a shot in the arm for the economy, but it shows how sick the patient is," he said. The Bank of England acted because of the "substantial risk" of undershooting its 2 per cent inflation target as recession looms in the wake of September's banking turmoil. It came as the International Monetary Fund warned 2009 would be the first year of shrinking activity for the world's advanced economies since the Second World War. "There has been a very marked deterioration in the outlook for economic activity at home and abroad," the Bank said. Its verdict came after the UK's first quarter of economic contraction since 1992 between July and September and further gloom for manufacturing and services firms this week. Consumer confidence has also been battered by tumbling house prices and retailers predicted the cut could help salvage what is likely to be a desperate Christmas for the high street. British Retail Consortium director-general Stephen Robertson said: "This is the kind of shock tactic that could get the economy's heart beating again. "This dramatic cut for Christmas could give customers the confidence to spend at what is many retailers' most important time of the year." Federation of Small Businesses national chairman John Wright added: "This unexpectedly large rate cut will make an enormous difference to small firms and will put money in people's pockets before Christmas." Interest rates were previously held at 5 per cent for six months by the MPC due to inflation fears, but with oil prices at less than half their July record recession concerns are taking centre stage. The deep cuts come despite the official measure of inflation standing at 5.2 per cent - more than double the MPC's official 2 per cent target - underlining how much the worries over an economic slump have grown. Economists were also stunned by the move. Royal Bank of Scotland economist Ross Walker called the MPC's cut "extraordinary", adding: "Bank rate appears to be on course for lows of 1-1.5 per cent." The Bank's official base rate is now below that of the European Central Bank, which cut by 0.5 per cent to 3.25 per cent today. But there is still room for further cuts to match rates in the US, which have fallen to 1.5 per cent this year. IHS Global Insight economist Howard Archer added: "Mounting evidence that underlying inflationary pressures are now moderating significantly gave the MPC scope for aggressive action." London's FTSE 100 Index slumped almost 6 per cent following the decision as traders took the move as a clear sign of the danger ahead. Mic Mills, senior trader at ETX Capital, said: "Traders are thinking, if we've really got to cut rates to 3 per cent, then how bad is it out there?" Currencies usually suffer when interest rates are cut but the pound remained relatively stable against the dollar at 1.58 despite falls in recent weeks. Sterling also gained ground against the euro. HiFX currency strategist Marc Cogliatti said: "Central banks who do not cut interest rates are seeing their currencies punished on the assumption that it will take longer for their economy to recover."