More interest rate cuts expected

The Bank of England delivered a widely anticipated quarter-point cut in rates, but left the door open for further reductions as it talked of a worsening in crisis-hit credit markets.

The borrowing boost marks the third time rates have been trimmed since December amid signs of gathering economic gloom, with figures earlier this week showing that house prices fell 2.5% last month - the biggest monthly drop since the property crash of the early 1990s.

The decision provides some welcome cheer for cash-strapped borrowers and homeowners, already under pressure from soaring energy, food and petrol bills.

But there are fears that many lenders will not pass on the quarter-point reduction to borrowers, with the crisis in wholesale money markets already seeing a raft of mortgage providers increasing rates and pulling deals.

While lending giants such as Halifax, Nationwide and Barclays' mortgage arm Woolwich said they would be reducing their standard variable mortgage rates by the full 0.25%, many have yet to pledge a rate reduction.

The past two cuts saw little reaction from lenders, with nearly one in five failing to pass on December's interest rate cut a month later, while others reduced their rates by just 0.15%.

And those borrowers taking out new mortgages or remortgaging are unlikely to benefit as the credit squeeze has seen rates for them increase despite the lower Bank base rate.

The Bank's Monetary Policy Committee stressed in a statement accompanying the rates vote that "the availability of credit appears to be worsening".

This may help bring rising inflation - which hit 2.5% in February - back down towards the Bank's 2% target, but also threatens the wider economy, it said.