Further interest rate cut from the Bank of EnglandInterest rates now at 1%

05 February 2009

statue outside bank of england headquarters

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

The Bank of England further reduced interest rates to a new historic low of 1% today.

Rate-setters cut borrowing costs from 1.5% - the lowest since the Bank was founded in 1694 - as they attempt to combat a worsening downturn.

Today's Monetary Policy Committee (MPC) decision - the first since the UK's recession was officially confirmed - continues the record-breaking run for lower rates.

It also follows International Monetary Fund (IMF) predictions that Britain will suffer more than any other advanced nation in the worst global recession since the Second World War.

The Bank has cut interest rates dramatically - from 5% last October - as it tries to offer relief to borrowers and businesses.

But the rate reductions have been a savage blow to savers, and many mortgage customers have been warned not to expect lenders to pass on the cut in full.

Comment from the Bank

In a statement accompanying the decision, the Bank said the global economy was in the throes of "a severe and synchronised downturn".

"Business and household sentiment in many countries has deteriorated. The weakness of the global banking and financial system means that the supply of credit remains constrained...

"Credit conditions faced by companies and households have tightened further. The underlying picture for consumer spending appears weak," it said.

More gloom for savers

While this is potentially good news for borrowers as they see their mortgage payments drop, savers will struggle even more to get meaningful rates on their savings.

The base interest rate cut coincides with new research by Which? that reveals that falling savings rates are one of consumers’ biggest concerns, with 75 per cent of people worried about the rate they receive.

Which? chief executive, Peter Vicary-Smith says:

“Our research shows that savings rates are a major area of concern for consumers and it’s no wonder given the eagerness of banks to slash their already miserly rates at the drop of a hat.

“The big name high street banks have consistently let their customers down so savers should vote with their feet by moving their money to one of the smaller institutions still offering decent rates.”

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