Mortgage rates cut to lowest level for 36 years

Mortgage rates fell to their lowest level for 36 years yesterday after the Bank of England cut the cost of borrowing in an attempt to prevent the global economic slowdown spreading to Britain.

Amid signs that a combination of stock market falls and the foot and mouth outbreak are starting to have a negative impact on the economy, the bank announced that it was reducing base rates from 5.75% to 5.5%.

The move triggered an immediate response from banks and building societies, with the cost of a typical £60,000 loan trimmed by around £12.50 to £325 a month. Britain's biggest lender, the Halifax, said the reduction in its variable mortgage rate from 6.75% to 6.5% took it to a level not seen since February 1965, and its reduction prompted similar moves from the Nationwide, Cheltenham & Gloucester and HSBC. The Abbey National said it would review its rates today.

The bank said in a statement that while the domestic economy remained firm, there were "downside risks to UK activity from the slowdown in the global economy, the recent fall in equity markets and, in the short run, from foot and mouth disease.

"These developments could already have affected demand and output growth and may continue to do so, in particular through their impact on business and consumer confidence." It added that its nine-strong monetary policy committee (MPC) would "continue to monitor the downside risks carefully", an indication that further interest rate cuts may be on the way.

The bank's comments, together with confirmation from official figures yesterday that Britain's industrial sector is in recession, reinforced the government's decision not to countenance any further delay in polling day beyond June 7.

Unions and employers welcomed the bank's decision to cut rates for the second time this year. John Monks, TUC general secretary, said: "This was the prudent decision. With no great inflationary pressures in the UK, and real dangers from fall out from the US economic downturn, this was the only sensible decision."

Digby Jones, director general of the CBI, said: "We do not expect the UK to go into recession, but it is clear there are stormy waters ahead. Both manufacturing and service sectors are seeing the effects of the problems in America. With earnings still subdued, despite a fall in unemployment, this was a good time to take pre-emptive action."

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