The half-point cut, to 6.25 per cent, by the monetary policy committee (MPC) was followed almost immediately by news of lower mortgage rates which will mean a saving of around pounds 20 a month on a typical pounds 60,000 home loan. But savers - who outnumber borrowers by two to one - will lose out when savings rates are reduced in line.
Interest rates have now returned, in the space of three months, to their May 1997 level. But they remain more than twice as high as European rates after last week's co-ordinated reduction to 3 per cent in the single currency countries.
The swift action by the MPC since the world financial crisis shows the Bank is willing to react to dimmer economic prospects, commentators said.
Ministers welcomed the cut and insisted the Government was on course to deliver the growth forecasts set out in last month's draft Budget. Stephen Byers, Chief Secretary to the Treasury , said: "We believe the only reason why the Bank has been able to take that decision is because of the tough measures we've introduced ensuring that inflation is at a target of 2.5 per cent and cutting the national deficit by pounds 20bn."
Kate Barker, chief economist at the CBI, said cut would give a welcome boost to spending in the Christmas season. But the announcement got a more half-hearted welcome from Roger Lyons, of the MSF union, who said: "It will be a miserable new year for manufacturing."
Yesterday brought more bad news in industry, with Royal Doulton announcing the loss of 1,000 jobs.Reuse content