Governor signals limits to interest rate cuts

Potential homebuyers hoping for mortgages to be made cheaper by major cuts in interest rates may have been left disappointed by comments from Bank of England governor Mervyn King that any reductions in the base rate may be very limited.

Speaking in Bristol last night, Mr King hinted at a rate cut in February, stating that the current 5.5 per cent base rate was "probably bearing down on demand".

However, he added, the bank faced the likely problem of higher inflationary pressures this year.

In addition to this potential constraint on any plans to cut rates, Mr King also said the role of central banks in trying to resolve wider economic problems was "limited", with banks and markets having to face up to the need to make "necessary" adjustments.

This comment may have been a rebuff to the notion that the Bank would copy the monetary policy of the US Federal Reserve.

Yesterday the US central bank announced a 0.75 per cent cut in the federal funds rate in a bid to boost the ailing US economy.

If the prospect for lower mortgage costs in the UK is limited, this may make the self-build option more attractive for those looking to acquire a home.


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