A timely cut in interest rates was made today as the Bank of England’s Monetary Policy Committee finally agreed to bow to industry and housing market pressure.

The MPC cut the bank rate by a quarter point to 4.5% after two days of meetings that were the 100^th time the Committee had met.

UK base rates had been left on hold at 4.75% since August 2004.

In the first half of the year, output growth in the United Kingdom was subdued, the Bank said.

Unusually, the Bank issued a statement along with its decision that said household spending and business investment growth have slowed. Although there are some signs of a pickup in consumer spending, downside risks remain in the near term. Looking further ahead, however, the rise in equity prices and the recent fall in the exchange rate should boost activity.

CPI inflation was 2.0% in June. Higher oil prices may raise inflation further in the short term. But, in the Committee's view, the slackening in the pressure of demand on supply capacity should lead to some moderation in inflation. Against that background, the Committee judged that a decrease of 0.25 percentage points in the repo rate to 4.5% was necessary to keep CPI inflation on track to meet the 2% target in the medium term.

The housing industry, which has been calling for a rate cut to end the stagnating market with neither sellers or buyers prepared to move in an uncertain economic situation, was not mentioned by the Bank in its statement.

Economists see the move as ‘fine tuning’ to control inflation and some predict it may be as low as 4% by the end of the year but equally it could move back to 4.75% again as early as February.

Mortgage holders, manufacturing, and property sectors will be pleased with today’s news but savers and investors will not be happy. Already one high-profile savings account run by ING has cut its interest rate from 5% to 4.75% ahead of the decision.