Economists expect 1% rate cut

While the Bank of England is expected to cut interest rates by up to 1% this week, few mortgage lenders will pass on the whole cut to their customers.

Economists are predicting that the Bank’s Monetary Policy Committee will slash interest rates, following the lead of America’s Federal Reserve Bank. It cut rates in the USA by 0.5% last week.

However, the chances of borrowers feeling the full benefit of the interest rate cut are slim. Darren Cook, of financial information group Moneyfacts, said: “Even fewer lenders than last time will pass on any rate cut that is made this week. They won’t be able to pass on any of the base rate cuts until money market Libor rates decline.”

Libor is the interest that banks charge each other.

When interest rates were cut in October, most mortgage lenders decided against passing on the full rate cut to customers. This was because the cost of obtaining cash remained high.

However, Libor rates have begun to creep down and currently stand at 5.84%. While this means banks are more willing to lend to each other, a cautious mood persists in the City. One trader said: “There’s still that fear, despite all that’s happened so far with the bailout and the recapitalisation, that there’s another nasty blow-up out there.”

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