Homebuyers will not benefit from rate cut

THE BANK of England announced a quarter point reduction in interest rates to 5.25 per cent yesterday. But the decision got a grudging welcome at best from business and unions as the European Central Bank upstaged it dramatically, cutting European interest rates by a half point to just 2.5 per cent.

Nor will most UK home-buyers feel the benefit of the move. For the first time since October the big mortgage lenders did not follow its lead.

Their explanation for this pause was that, with six interest rate cuts in seven months, it was time to take account of the needs of savers. But analysts suggested lenders were taking advantage of the spring upturn in the housing market to boost their profit margins.

Yesterday's midday announcement by the Bank of England was welcomed by British industry, but with the now-familiar demand for even lower loan rates. The Confederation of British Industry, the British Chambers of Commerce and Institute of Directors unanimously called for a further reduction towards continental levels of interest rates.

John Monks, general secretary of the TUC, said: "Manufacturing needs more of the same and soon, if it's to be helped off the ropes."

However, City analysts warned UK rates could not fall much further, with perhaps one more reduction next month. The British economy has shown signs of rapid recovery, while some of the biggest continental economies have slowed more than expected.