Decision may benefit borrowers

The Bank of England has cut interest rates by a quarter of a per cent today to 5.5% in a move that is likely to mean cheaper mortgage rates for millions of home owners.

Halifax, the UK's largest lender responded immediately and said it would reduce its variable mortgage rate from 6.75% to 6.50% with immediate effect. This means the Halifax rate is now at its lowest since 1965.

Nationwide, the UK's largest mutual lender, said it would reduce its base mortgage rate by 0.25% to 6.24%, while its standard variable rate comes down by the same amount to 6.74%.

A spokeswoman said the reduction would mean a borrower with a ?60,000 interest-only mortgage would save about ?12.50 a month. Abbey National has yet to respond to the rate cut news, but looks likely to follow suit.

But the reduction is not good news for savers, who are likely to be worse off. So far, none of the major banks or building societies have said if they plan to review their savings rates downwards.

Halifax said it would not announce changes to its savings accounts "until later in the month". Egg, the online bank, also said it was considering its position but would be unlikely to make an announcement this week.

This is the second time this year the Bank of England has cut rates. The last time was in February, which was also a 0.25% reduction. Interest rates now stand at 5.5% - the lowest level for 16 months.

The reason for this latest rate reduction is to protect the UK from the ailing US economy, which is experiencing a dramatic slowdown in growth. So far it looks as if the UK economy has not been affected by the US trends, although foot and mouth disease is having a negative impact.

The decision was taken by the Bank of England's nine-member Monetary Policy Committee (MPC). Their main aim is to keep inflation rates low.

It is likely that the postponement of the election encouraged the rate cut. The MPC looks to stay out of politics and will be unlikely to make any further changes in the run up to the election.