Bank of England cuts interest rate to 5%

The 0.25 percentage point reduction was widely forecast by economists, although the fact that banks have been increasing their mortgage rates and fees means that the impact will be minimal for most homeowners.

The cut is the third since December, as the Bank of England strives to tackle the credit crunch and ensure the economy does not deteriorate.

BRC director-general Stephen Robertson said: “This interest-rate cut will give customers and retailers a much-needed boost. With consumer confidence at its lowest level for 15 years, customers are reining in their spending and every prudent retailer is looking at cost-cutting more seriously than for some time.

“The Bank is understandably concerned about inflationary risks, but these are mainly coming from rising world-energy and commodity prices, which won’t be affected by keeping rates high. Retailers are absorbing many of the input cost increases and intense retail competition means that non-food prices are actually falling, while food-price inflation is slowing.

“With interest-rate changes taking months to have any effect, further rate cuts are needed sooner rather later to avoid a hard landing.”

However, for the rest of the year, the Bank of England faces a difficult balancing decision, as it weighs up the risk of inflation rising further against slowing economic growth.