Money News

Base rate cut to 1%, what does it mean for you?

Thursday, 5 February 2009

Writes Hazel Cottrell
hazel.cottrell@consumerchoices.co.uk

With recession gripping the country, The Bank of England has cut the base rate in an ongoing attempt to revive the economy.

The Monetary Policy Committee (MPC) today cut UK interest rates from 1.5% to 1%, noting that “The global economy is in the throes of a severe and synchronised downturn.”

It said there was no risk of inflation in the medium-term so the cut was justified to boost the flailing economy.

What this means for you:

• Mortgage holders: This is good news for those on a tracker deal who should see their monthly repayments fall. For those on an SVR, it is up to your lender whether it passes on this cut. Many will not.
• Savers: Interest rates on savings accounts are already at an all time low and are now likely to drop even further.

The base rate has now been reduced five times from October’s 5% to today’s 1% - the lowest rate since the Bank was formed in 1694. However, it is clear that base rate cuts alone are not going to save the economy.

Trevor Williams, chief economist at Lloyds TSB Corporate Markets said: “Now is definitely the time to discuss what other tools might be used to revive the economy in a world where base rate cuts are no longer possible.”

Yesterday, The Council of Mortgage Lenders (CML) said that a base rate cut would be of limited help to the housing and mortgage market.

It commented: “While it may help, the CML doubts that lower rates in isolation will reverse the low level of transactions or the downward pressure on house prices.”

Chris Eagle, commercial manager at CreditChoices.co.uk said: “While the base rate has been cut for a reason, without the government taking further fiscal measures, its positive effects are limited.

“For those with savings, the cut is particularly bad news and I hope people won’t be tempted to take on unsuitable risks to improve returns.

“I agree that the mortgage market is likely to remain frozen as the banks still have no appetite to lend except to those with a lot of equity or a large deposit.”

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