Bank of England cuts interest rates againRates fall to lowest level in 300 years

08 January 2009

statue outside bank of england headquarters

You may have to pay tax on some of your savings income

The Bank of England announced the expected cut in interest rates today, reducing the base rate to 1.5%.

A further reduction in rates to attempt to ease the continuing impact of the credit crunch means that rates have fallen below 2% for the first time since the Bank of England was founded in 1694.

This is the fourth rate cut since October 2008 and the seventh reduction since rates reached a recent high of 5.75% at the start of 2008.

The Monetary Policy Committee explained their decision in detail:

"The outlook for business and residential investment has deteriorated. And the availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non-financial sector."

Good news for borrowers, more gloom for savers

The news of the latest cut in the base rate will mean that many people with mortgages will see their monthly repayments fall, but savers will struggle to find any products that pay decent rates of interest.

Consumers will hope that the full rate cut will be passed on to mortgage borrowers on lenders' standard variable rates (SVRs) and those with tracker mortgages, although most tracker products have 'collars' below which their tracker rates will not fall.

Savers are facing a grim time in their attempt to get meaningful returns on their cash. Even before today Moneyfacts had indicated that 38% of savings products were now paying interest of less than 1%.

Which? calls on banks to be fair to all customers

With the Bank of England announcing a further cut to the interest base rate today, Which? chief executive, Peter Vicary-Smith, says:

“Banks can’t have their cake and eat it – they must either maintain rates for savers or pass on the full benefits of the rate cut to their mortgage customers.

“Many banks are offering rates as low as 0.1 per cent on savings accounts so for them to say they are looking out for savers by not passing the rate cut onto borrowers is a hollow argument.

“Individual consumers didn’t cause the financial crisis and shouldn’t be the ones to suffer as the banks try to recapitalise their businesses.”

To find the best current rates on mortgages and savings use the Which? online money tools.

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