After calls for a second consecutive cut in January were not heeded by the Monetary Policy Committee (MPC), February’s Base Rate decision took on a far greater importance.
Indeed a large number of commentators insisted that a rate cut was vital in warding off further economic destabilisation as talk of a US recession intensified during January.
This is still only the second rate cut since August 2005 and follows the US Federal Reserve’s emergency action which saw rates slashed by 1.25 per cent over an eight-day period.
Lenders have already responded to the decision, with Woolwich, Nationwide and HSBC pulling their SVRs back by the full amount.
The average borrower will save just under £30 per month on a 25-year £200,000 repayment mortgage.
CML statistics show that the market is still dominated by fixed rates, accounting for between 45-50 per cent of all outstanding homeloans. However tracker popularity could begin to rise as remortgagors look to capitalise on a lower interest rate.
Reaction
As Charles Stanley's chief economist Edward Menashy puts it, "the cavalry have come back to save the fort," however Colin Bell, managing director of InterBay Commercial warned that the cut could be a double edged sword, encouraging more reckless borrowing.
Less conservative commentators include Eamonn Rice, mform.co.uk chief executive and Legal & General's mortgages director, Ben Thompson.
Rice said that the cut was 'too little, too late,' stressing that the MPC should have sliced at least 0.5 per cent off rates to help change the mood of the nation.
Thompson called for the MPC to follow up over the next few months and settle on a rate of 5 per cent: “While council tax, utility bills and household costs have risen by more than a third in the past four years, the average family is £1,300 worse off a year.
"This has contributed to a nervousness amongst borrowers about their debt to income ratio resulting in a higher than expected proportion choosing the security of a fixed rate mortgage."
Taking a more rounded view, Kevin Purvey, head of intermediary sales at C&G, suggested that the decision would definitely not have been an easy one for the MPC to make.
“The Bank of England is facing a particularly tough balancing act at the moment. On the one hand it needs to ensure that the expected economic slowdown does not become too pronounced, while on the other it has to keep the lid on the inflationary pressure, resulting from higher energy and food prices," he said.
"As for the future; we can probably expect to see a modest rate cut in the spring, most likely May, when evidence of a slowdown will be clearer."
