Interest rates cut

Last Modified: 06 Dec 2007
By: Bridgid Nzekwu

Tis the season to be jolly... and many will be delighted that interest rates have been cut ahead of the festive season.

Retailers in particular will be heaving a sigh of relief that their entreaties to the Bank of England have been heard.

Because despite the appearance of festive cheer, the high street is suffering as consumers tighten their belts.

Retailers fear the traditional pre-Christmas spending frenzy could turn out to be a damp squib. Five interest rate rises since August 2006 have caused significant pain to consumers.

This time last year the average £100,000 interest-only mortgage cost £400 a month. If that homeowner is on a new two year fixed deal, the monthly payment is now £533. So, for many there's less cash to splurge on presents.

Controlling inflation is the Bank of England's key aim - so it will be somewhat reassured at the cooling housing market. But with the Halifax saying prices have now fallen three months in a row, some fear it's dropping off too rapidly.

Food prices on the other hand are soaring - up more than five per cent overall on this time last year. But that masks some considerably bigger rises.

Last Christmas a turkey to feed a family of four cost 23 pounds - this year it's 25 pounds, up 10 per cent.

The cost of dairy products keeps rising and wheat prices are breaking records, partly because of poor harvests and the fact that more and more grain is being diverted to biofuels. All these factors have an effect on the price of the weekly shop.

Big rises in fuel prices have added to the pain. Overall they're up more than 12 per cent compared to last year. So a car journey to see relatives at Christmas will be more expensive.

Last year the cost of filling up the average petrol tank was just under 44 pounds - it's now more than 51 pounds.

The cut in rates today is a Christmas present to the economy that will please the city and, it's hoped may herald a return in the feelgood factor for many consumers.