Nationwide, Britain's largest building society, pledged yesterday to cut its key mortgage rate by 0.25 per cent to 6.2 per cent from 1 October if base rates stayed at 5 per cent. The cut would benefit 500,000 customers who have a standard variable mortgage rate. For a borrower with a pounds 60,000 interest-only loan, this would mean a saving of pounds 11.88 a month. The society also said it would leave its rate unchanged if the Bank raised the cost of borrowing.
Nationwide's pledge comes just weeks after the Government criticised lenders for failing to pass on benefits of the Bank's last two rate cuts, which sliced 0.5 per cent off the cost of borrowing, while cutting the rates they pay to savers.
Nationwide's move was interpreted yesterday as a defence of its mutual status after a financial predator this week bid for the tiny Leek United society offering pounds 950 windfalls to its 70,000 members. Nationwide said an average customer would be pounds 30 a month better off than borrowers with Halifax or Abbey National, both former building societies that have converted to bank status.
Brian Davis, the chief executive, said: "Over the last few months we have seen some of our banking competitors widening their margins. Despite record profit figures, they appear quite comfortable with the idea of making even greater profits at the expense of their customers. We can put the interests of our existing members before increased profits because we are a building society."
The view in the City is that the Bank will leave rates on hold. Retailers and manufacturers have already issued a plea against a rate rise, saying it would damage the fragile recovery.
However, new figures yesterday showed high street sales in August at their highest levels for 18 months. Meanwhile factory output rose in July, fuelled by a surge in the pharmaceutical sector, providing fresh evidence that the beleaguered manufacturing sector has climbed out of recession.
Shops sales rose sharply last month and are now running at their strongest levels since February 1998, the Confederation of British Industry said. The increase was driven by surges in sales of furniture and carpets and hardware and DIY equipment - reflecting the activity in the housing market. The CBI pointed to the fact that prices were rising at the slowest rate for five years as a sign that there was no inflation on the high street.
But fears are growing that rates will have to rise before the end of the year to control an overheating economy. House prices are rising at 10 per cent a year and Deutsche Bank warned this week that prices could surge by another 30 per cent unless rates are hiked.
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