Interest rates in the UK have been cut by 0.25% to 5% by the Bank of England's Monetary Policy Committee (MPC) today.
It is an attempt to stave off the threat of recession in the UK economy and to try and offset the ongoing credit crunch.
It is the 3rd cut in interest rates that the bank has made since December 2007.
The problems in the credit markets are obviously overshadowing the threat of inflation as the governments 2% target on inflation has already been breached. However, the lack of funding for mortgages, the possibility of house prices falling and further deterioration in the wider economy was enough to make the MPC cut rates.
We are hopeful that the rate cut will be passed on to borrowers but it cannot be certain. Lenders are reeling from sub prime losses in the US and the lack of liquidity in the money markets means that the amount of funds available are finite. This means that lenders are doing far less business and therefore need to maximise their margins and so are unwilling to follow the Bank of England's lead.
Many businesses have called for further cuts to shore up economic growth. It is very important that problems in the finance sector do not damage the wider economy. Consumer confidence is also likely to be waining with all the negative press around at the moment. We still believe the press want to talk us all into a recession.