Bank cuts interest rate to 5 per cent

Bank of England policymakers cut interest rates to 5 per cent today in the latest attempt to shore up the economy in the face of a deepening credit crisis.

The quarter-point cut is the third since December and comes amid signs of gathering economic gloom, with figures earlier this week showing that house prices fell 2.5 per cent last month - the biggest monthly drop since the property crash of the early 1990s.

Today's decision will be a welcome boost to cash-strapped borrowers, already under pressure from soaring inflation.

Monthly repayments on a £100,000 mortgage will fall by £16 if lenders pass on the cut in full, reducing them from £722.80 to £706.77 a month, based on a new rate of 7 per cent.

But there are fears that many lenders will not pass on the quarter-point reduction to borrowers, with the crisis in wholesale money markets already seeing a raft of mortgage providers increase rates and pull deals.

The past two rate cuts saw little reaction from lenders, with nearly one in five failing to pass on December's interest rate cut a month later, while others reduced their rates by just 0.15 per cent.

A similar pattern was seen after February's interest rate cut and around a fifth of mortgage lenders are expected to opt against following the Bank of England's lead with today's full quarter-point cut, which could spell more mortgage misery for some borrowers.