Skip to content

UK base rate down to 1.50%

The base rate at 1.50% is now at its lowest level since the Bank of England was founded in 1694.

Today's base rate cut was viewed as absolutely necessary to help support the economy through recession. We also cannot rule out the possibility that base rates could fall to zero over the next few months, although this has never happened before in the UK. If interest rates approach zero the Bank of England would be forced to start using quantitative easing and other unorthodox measures if further policy easing is required to support the economy through the recession.

James Thomas, Head of Residential Investment at Jones Lang LaSalle comments,

"Although the decision to cut base rates was welcomed, it is not expected to make much difference to UK homeowners in the short-term. Banks are expected to restrict lending further this year and this means life will remain difficult for potential buyers. Furthermore, rising unemployment and uncertainty about job security will see potential buyers very reluctant to commit to any purchases."

"The only sign of respite for the housing market is that the large interest rate cuts made last year are feeding through to the LIBOR rate. The 3-month LIBOR rate was 2.65% at the start of 2009, down from a peak of 6.30% at the start of last October. Lenders' standard variable rates are falling as a result, which will ease the pain somewhat for borrowers coming to the end of fixed-rate deals and unable to remortgage."

UK commercial property

Despite today's interest rate cut, GDP is expected to contract further this year. Although most analysts are predicting that the economy will bottom out towards the end of 2009, there is a risk that the recession could be deeper and longer if the wholesale market is still not functioning properly and if global growth slows markedly for an extended period.

Fergus Hicks, Head of Forecasting and Economics at Jones Lang LaSalle comments,

"The recession is hitting the occupier market hard, worsened by the deteriorating conditions in the retail sector. Property prices will remain under downward pressure, due to the combined influences of rising yields and falling rents. This may present an excellent buying opportunity for investors later this year. Investors will be able to capitalize on distressed sales and low property prices."