Halifax, Britain's biggest lender, led the scramble by building societies to reduce their rates by announcing that its basic home loan rate was being cut from 7.74 to 7.49 per cent - its lowest level since 1966. The decision cuts about pounds 8 a month off the cost of a pounds 50,000 interest- only loan.
The cautious cut in base rates to 6.5 per cent - the first in almost two years - was given half a cheer by the City and Conservative MPs, who are expecting it to be followed up with further cuts in the cost of borrowing in the new year.
Mr Clarke said the quarter point cut in base rates - agreed by Eddie George, the Governor of the Bank of England, after months of resistance - was made because the economic slowdown meant a cut in rates would not threaten the Government's inflation target.
The Halifax's move was rapidly followed by most other lenders, including Abbey National, Bradford & Bingley, Britannia, Woolwich, National & Provincial, Portman, Northern Rock, Bristol & West and Norwich and Peterborough. The tiny Newbury society dropped its rates even further, to 7.29 per cent.
In Nationwide's case, its decision came despite earlier statements that the base rate cut was not enough to make it drop mortgage rates further.
A Halifax spokeswoman said she hoped the reductions would help boost the housing market: "Homes are more affordable today than for many years. We believe that a rate reduction will help increase ... confidence. It may not be a cure, but it should be a hopeful incentive."
The City is expecting to see 6 per cent interest rates by June next year. Presenting a united front, Mr Clarke and Mr George insisted there had been no disagreement about policy. The decision to cut by a quarter point had been recommended by the Bank and agreed by the Chancellor. "The only issue at the monthly monetary meeting was whether to go for a quarter or a half per cent cut," said Mr Clarke.
The Chancellor signalled that any further reductions were likely to be on a similar scale. He said that in an environment of low inflation, he was influenced "by the belief that we should move in quarter rather than half a per cent steps".
Mr George said the Bank's recommendation stemmed from a change in its view about inflation. He said: "The odds have moved in favour of reaching the inflation target of 2.5 per cent or less."
However, some City analysts expressed scepticism. "The suspicion is, that despite today's statements, the Bank would have preferred not to cut rates yet but have been overruled," said Michael Saunders, economist at Salomon Brothers.
Conservative MPs were disappointed that the cut was not bigger, but said it could help to restore the feel-good factor if it was followed by more cuts.
Labour accused Mr Clarke of committing a gaffe by suggesting that the bottom 10 per cent in the economy were not genuinely poor. Some of them just employed "very good accountants", he said.
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