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Bank of England Cuts Rate to 5 Percent

The Bank of England cut interest rates by 25 basis points to 5 percent on Thursday, amid continuing weakening in the housing market and as fears of an economic slowdown increased.

The pace of decline in UK house prices accelerated in March to levels not seen since September 1992, according to data from the UK mortgage lender Halifax, sparking worries that the situation was alarmingly similar to that in the U.S. at the beginning of the subprime crisis.

"Credit conditions have tightened and the availability of credit appears to be

worsening," the BoE said in a statement.

Judging by the way that mortgage rates in the UK are rising, even as the central bank cuts rates, and by how mortgage products, especially for first time buyers, are being withdrawn, it can be argued that financial conditions are tighter than before the BoE started to cut rates, analysts said.

"We have the global credit crunch to thank for this," ING Bank's Rob Carnell wrote in a market note. "Certainly, the housing market seems to be suffering badly, with broadly measured year on year declines in house prices only a matter of months away."

Some analysts had expected a deeper cut, of 50 basis points, but high oil and food prices have brought the inflation rate to 2.5 percent, above the central bank's target of 2 percent.

"In the United Kingdom, business surveys suggest that growth has begun to moderate and that a margin of spare capacity will emerge during this year," the Bank of England said. "This should help to keep domestic inflationary pressures in check in the medium term."

The bank will continue to cut rates, which may get to as low as 4 percent at the end of the year, Carnell said.

Contact Europe: Economy

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