The Bank of England cut interest rates from 5.5% to 5.25% amid signs of an economic slowdown and flat housing prices. This move comes on the heels of two rate cuts in the United States, where the Federal Reserve has lowered key rates to 3% from 4.25%. The Bank of England indicated it was unlikely to cut rates as much as the US because of fears of inflation.
While the bank indicated that it needed to balance growth with inflation, analysts had their own opinions as to what the end result will be. Andre McLaughlin, chief economist at RBS, was quoted by the BBC: “The slowdown in the UK economy has so far been modest, and, with inflation above target, the MPC appears determined to proceed with caution,” said McLaughlin. He continued, “Nevertheless, economic headwinds are becoming stronger and a more aggressive policy response may yet be required.”
Trade union umbrella body the TUC was pleased with the decision to lower rates, as head of economic and social affairs Adam Lent noted “Homeowners will be pleased at the prospect of lower mortgage payments and UK manufacturers will look forward to paying less when they want to borrow to invest.”
According to Halifax Bank, house prices were unchanged in January from the previous month. Rival lender Nationwide said previously that prices fell by .1% in January.
“The Halifax and Nationwide data indicate that, while house prices are cooling significantly, they are currently not plunging through the floor,” said Howard Archer, chief UK and European economist at Global Insight. However, many analysts believe that there will be increased pressure on the central bank to keep interest rates low.
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