Drop in interest rates comes as welcome surprise for UK

Earlier this month the Bank of England announced that the base rate was being slashed by 1.5%, bringing the base rate down to its lowest level in over fifty years, at 3%. After a series of rate rises between August 2006 and July 2007, which saw the base rate rocket to 5.75% the news has been welcomed by many consumers and industry groups.

The cut is the most dramatic since 1991, and the government is hoping that it will help to boost consumer confidence, increase affordability, boost spending, and revive the failing economy. However, this will all depend on how many lenders pass on the full rate cut – a number have already confirmed that they will be cutting their rates by the full 1.5% over the coming weeks.

After the announcement of the rate cut the Chancellor of the Exchequer, Alistair Darling, said: “I think it’s essential that the banks do pass on the benefit of lower interest rates to people and to businesses. Banks need to understand that they need to help their customers.” Prime Minister, Gordon Brown, has also called for banks to pass on the rate cut.

Following the rate cut the Shadow Chancellor, George Osborne, stated: “This is a shot in the arm for the economy, but it shows how sick the patient is.” An official from the CBI was pleased with the decision, saying: “This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for.”