Bank of England cuts rates to 5%

The Bank of England has cut interest rates by 0.25 per cent to 5 per cent in a bid to boost the economy.

Interest rates are now at their lowest level since November 2006 and is the third time the Bank's Monetary Policy Committee has slashed rates since December.

The MPC had been deliberating for two days as economic data suggests the credit crunch is hitting the UK economy hard.

But, the cut is unlikely to help anybody looking to get on the property ladder, because mortgage rates have climbed steadily since the beginning of the year as lenders increase the price of their home loans to reflect higher fund costs and to try to stifle demand.

This week, the International Monetary Fund (IMF) slashed UK growth forecasts to 1.6 per cent, half the level seen in 2007.

And the IMF said the current cooling in the housing market could get worse as anxious lenders hike borrowing costs or pull out of some markets altogether.

Halifax figures have shown that house prices fell 2.5 per cent last month, the biggest monthly drop since the property crash of the early 1990s, with borrowers struggling to secure finance to buy property.

The Bank of England's own data showed that the average cost of a new two-year fixed-rate mortgage for someone with a 5 per cent deposit soared to a seven-and-a-half-year high of 6.64 per cent at the end of last month.

The average rate is now 0.17 per cent higher than it was in November despite the Bank of England base rate begin cut by 0.5 per cent during the period, and it compares with average deals of 5.88 per cent in March last year before the credit crunch hit.

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