Bank of England cuts interest rates

Thursday, 5 February 2009 12:00 PM

The Bank of England has cut interest rates by half a percentage point to a further record low of one per cent.

The cut today means the Bank rate has fallen from five per cent in October to the current level of one per cent.

Further cuts are now expected later in the year - taking interest rates to as close to zero per cent as technically possible.

Lloyds TSB has already stated its standard variable rate (SVR) and tracker mortgages will match the Bank of England cut.

Not all other lenders are expected to follow suit, citing the need to balance interest rates for savers and borrowers.

Nationwide Building Society has already stated its tracker mortgage rates will not fall any further, although its SVR, or base mortgage rate (BMR), will drop as it has pledged it will never be more than two per cent above the Bank of England base rate.

The Council of Mortgage Lenders (CML) has also stated for mortgage lending to continue interest rates on savings accounts, and therefore mortgages, must not drop further.

"Naturally, borrowers on bank rate tracker mortgages would welcome a cut, but they are already paying low rates by historical standards and the interests of savers have begun to attract a higher profile within the current low interest rate environment," a CML spokesperson said.

"Given that lenders need to attract savers to help fund new mortgage lending, this is an important factor in sustaining and improving the flow of lending."

The body also doubted whether housing and mortgage markets would be boosted by any further cut.

The Building Societies Association (BSA) also called for more to help UK savers - who greatly outnumber borrowers.

Adrian Coles, BSA director general, said earlier this week: "The cuts in interest rates have had a severe impact on savers.

"The reductions, from 5.75 per cent prior to the run on Northern Rock in 2007 to 1.5 per cent have seen incomes from savings drop by almost 75 per cent, although the full impact of the base rate cuts has not actually been passed on to many savers.

"This drop in income is particularly serious for pensioners who have saved all their lives and now face a sharp reduction in their income and living standards."

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