Rate cut has little impact

THE BANK of England cut interest rates yesterday by an unexpected quarter-point, to 5.25 per cent. Lenders said that the cut was too small to trigger a drop in mortgage or savings rates, but they have not ruled it out if rates are cut by a further quarter point, write Vivien Goldsmith and Robert Chote.

Interest rates were last cut in November and are at their lowest since 1977. The Chancellor, Kenneth Clarke, said the move reflected the prospect of continued low inflation, but it was also seen as a pre-emptive sweetener for April's tax increases. Business leaders said it was a move in the right direction, but would have little impact.

Banks have moved away from overdrafts related to their base rate, so the move will not immediately cut the cost of borrowing. Credit cards are also unlikely to change, although John Lewis cut its store card rate from 19.5 to 18 per cent.

City surprised, page 27

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