Bank of England cuts the base rate to 5.25%

On 7 February 2008, the Bank of England cut interest rates by 0.25% to 5.25%. The move was widely anticipated by analysts, with reports of rising inflation and slower economic growth. The move follows the recent cuts in America, where the Federal Reserve slashed interest rates from 4.25% to 3%. It is not believed that the Bank of England will make such a significant cut in the future due to rising inflation.

The move comes as a welcome relief for mortgage borrowers, although some commentators are already concerned that the lenders may not pass on the rate cut to their customers. Michael Coogan, Director General of the Council of Mortgage Lenders, said: "This is good news for the quarter of UK borrowers on tracker rates who will see an imminent reduction in rates. However, borrowers should not expect that a base rate reduction will automatically result in a cut in standard variable rates or discounted rates across the market. Lenders' rate-setting policies are more complex than simply the level of the base rate. They are determined by a range of factors, including the cost of retail funding and the cost and availability of wholesale funding."

The mainstream property market has stagnated in recent months, prices falling in some areas. However, according to the latest Primelocation.com House Price Index, the prime London property market has begun the year with a boost in average asking prices. In January 2008, average asking prices for prime property in the capital rose by 3.4% as the volume of property for sale fell by 10%.

Ian Springett, Chief Executive of Primelocation.com, comments: "Many potential vendors have adopted a wait and see approach, perhaps feeling that the current climate is not conducive to a quick sale at the best possible price. But with fewer properties to choose from and with sustained demand from the City investors and international money, asking prices have been pushed upwards. The resilience of the prime and super-prime property sectors in London has shielded the capital from much of the uncertainty surrounding the mainstream market, where affordability issues and the tightening of lending criteria have led to a stalling market. However, the recent interest rate cut will undoubtedly provide a welcome boost to the mainstream property market, provided mortgage lenders pass on the reduction to consumers".