Shock cut in loan rate

The Bank of England today brought unexpected cheer to millions of homeowners by cutting interest rates to their lowest for 48 years.

The move, which will mean cheaper mortgages for variable rate borrowers, took the base rate down from four per cent to 3.75 per cent.

With the first cut since November 2001, the Bank's monetary policy committee is aiming to shore up flagging consumer and business confidence, amid economic uncertainty and fears of war with Iraq.

It is also a response to tumbling stock markets where billions of pounds have been wiped off shares since the start of the year.

The cut stunned the City, where pundits had been virtually unanimous in predicting the Bank would keep rates on hold because of the housing and borrowing booms.

The FTSE 100 share index pared some of its earlier losses on the news, while sterling was steady at $1.6470.

In a statement, the Bank said: "Over the next two years, the prospects for demand, both globally and domestically, are somewhat weaker than previously anticipated. In order to keep inflation on track to meet the target over the medium term, the committee judged it necessary to reduce rates."

Lenders are expected to pass on all or part of the latest cut to borrowers. If passed on in full, a £100,000 borrower will pay approximately £570 - £15 less - while the repayments of a £150,000 borrower will fall by about £22.50 to £850.