Bank of England urged to consider savers

The Building Societies Association (BSA) warned that a further base rate cut would be "bad news to almost everyone connected to the savings and mortgage markets".

Savers have already seen the returns they earn on their deposits dive by 83% since official rates peaked at 5.75% in 2007.

Around 86% of savings providers reduced the interest they pay on their accounts by 0.5% or more following February's base rate reduction as competition evaporated from the market.

Recent figures have shown that consumers are beginning to withdraw their money from savings accounts to put them into higher yielding investments.

The British Bankers' Association said a record £2.3 billion of savings was withdrawn from banks during January.

The BSA warned that another cut in interest rates would act as a further disincentive to savers, and this in turn would reduce the level of funds banks and building societies had available for mortgage lending.

It added that the declining profit margins banks and building societies now faced as a result of the ultra-low interest rates would further restrict their ability to lend.

Adrian Coles, director-general of the BSA, said: "If the Bank of England wishes to make a contribution to a recovery in the housing and mortgage markets, it should not cut interest rates this month.

"We need to encourage an increase in the flow of funds into the mortgage market, not take steps that would further restrict that flow.

"The Bank should also bear in mind the severe difficulties suffered by many pensioners who now find that a lifetime of saving has not delivered the standard of living they had every right to expect until a few months ago."

The latest figures from the Bank of England show that savings rates dropped to a record low during January with notice accounts now paying an average of just 0.29%.

The returns paid on branch-based instant access and notice accounts, tax-free ISAs and bonds are all now the lowest since the Banks' records began.