Homeowners are breathing a long overdue sigh of relief today after the Bank of England slashed UK interest rates by 0.25% to 5.5%...

Expectations of a rate cut had risen in recent days after figures indicated that economic conditions had deteriorated over the past few weeks.

Warren Bright, chief executive of propertyfinder.com, argued that it was ‘high time’ the BoE reacted to the current slowdown: “The housing market has been slowing for some time and the rest of the economy is now following.  The very public plight of lenders struggling to finance themselves has hit confidence hard - and it was high time the Bank of England made a move to protect the economy. 

Mr Bright also warned that not everything would feel the benefits: “Not all mortgage borrowers are going to benefit from today’s cut.  Rates will stay high for those considered less likely to pay back their loans.  What’s more, mortgage lenders are also unlikely to pass on the full impact of the rate cut – lenders themselves are feeling the squeeze from the money markets and will try to rebuild their margins wherever they can.  But today’s decision will offer some reassurance to everyone that the MPC is not sleeping on the job.’

More insight and leadership needed

Stuart Law, Chief Executive of Assetz, lambasted the Bank for dragging its feet over the rate cut: "Whilst it is good to see that the MPC have finally voted to drop rates by 0.25%, it is too little and too slowly.

“It is disappointing to see that the committee members appear to have no more insight into the state of economy than the man on the street - when the situation is blindingly obvious and all of the data is on the table then they act - this just isn't good enough from the organisation effectively controlling the future of our economy. I expect far more insight and leadership from the Bank of England in the form of pre-emptive action.

Mr Law added: “Recent months have shown how indecisive the Bank of England is in more difficult circumstances and perhaps how much of an easy ride the Bank, and Mervyn King in particular, has had over the last decade of low inflation, low rates and good growth.

“Now times are more difficult it is clear the MPC needs to move up a gear and take control by lowering rates further and even improving liquidity in the market. However, I expect we will see their ‘too little too late’ approach leading to more drastic rate cuts next year."

Economy in ‘disarray’

Paul Smith, chief executive of haart estate agents, echoed Stuart Law’s concerns but lamented the state of the economy:  “We are relieved to hear that the Bank of England has finally listened to the numerous calls to reduce the base rate, but it really is a decision that should have been taken sooner to pre-empt current problems.

“Inflation is under control. However, as the economy is in a state of disarray and the housing market has cooled down dramatically, it would have been a serious mistake to hold the rates again, denying the market a chance to recover. In addition, repossessions have been climbing as a result of reckless lending and the inability of many to afford increased mortgage repayments.

“Today’s interest rate drop will start to work towards correcting consumer affordability constraints and averting a complete downturn in the economy. Looking forwards, it is imperative that lending is more closely monitored from now on.”

Commendable flexibility

It wasn’t all doom and gloom though; The British Chambers of Commerce (BCC) praised the MPC's "commendable flexibility" saying the rate cut would help to alleviate potential dangers facing the economy and give a much-needed boost to business confidence.

"A cut in rates was clearly needed to counter the growing international threats emanating from the US, and to unblock the dangerous obstacles preventing the banking system from operating smoothly," the BCC's David Kern said.

"Threats to growth are much bigger now than risks of higher inflation."

Mr Kern added that if credit conditions remained too tight, a further cut in rates may be required early next year.