The Bank of England today stunned the City by slashing interest rates by 1.5% to 3% – the biggest rate cut in almost 28 years.
The shock decision by the Bank’s rate-setters will please business leaders who had called for drastic action after a slew of gloomy figures revealed the state of Britain’s economy.
The rate cut is the biggest in the UK since a 2% cut in March 1981 – when the country was in the midst of a recession – and it brings rates to their lowest level since 1955.
The move will also be welcomed by those on tracker mortgages linked to the Bank’s base rate.
Lloyds TSB immediately announced it was passing on the full 1.5% to its variable rate mortgage customers.
Homeowners on standard variable rate mortgages should see their average monthly payments on a £150,000 mortgage fall by around £138 – if the cut is passed on in full.
Tory chairman of the Commons Treasury sub-committee Michael Fallon called for high street banks to pass on the rate cut.
He told Sky News: ‘We are in a battle against recession and everybody’s got to play their part – and that includes the banks.’
Stock markets immediately rallied on the news with the FTSE initially gaining almost 100 points before falling back slightly.
Earlier it had plunged by more than 3.5 per cent.
The Bank of England’s Monetary Policy Committee (MPC) said it made the move because of the ‘substantial risk’ of undershooting its 2% inflation target as a sharp recession looms.