Savings account rates set to fall below one per cent

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The average return for instant access accounts stood at 1.07 per cent before today's interest rate decision from the Bank of England.

Today's cut to 1 per cent will inevitably mean savings rates will have to be measured in fractions of percentage points from this week, experts say.

According to research from financial website moneyfacts.co.uk, which tracks almost 900 accounts, returns have collapsed by three quarters from 4.25 per cent in 15 months. This has hugely cut the living standards of savers who rely on investment income. On savings of £100,000, this would mean monthly post-tax income falling from £283.33 to £71.33.

Moneyfacts spokesman Darren Cook said: "Savers are falling over with frustration because they were the ones who took the prudent steps and now they are the ones who are being hit drastically.

"Cutting interest rates is a textbook response to a recession but people's livelihoods and day-to-day budgets are being devastated."

The Bank's Monetary Policy Committee today cut the base rate by 0.5 per cent to an all-time low of one per cent.

For about five million home owners — 750,000 in London — the fifth consecutive monthly cut will bring more relief.

About four million borrowers with tracker mortgages will automatically see their rate reduced in line with the Bank's decision. In addition borrowers on standard variable rates with the Halifax, Nationwide, Cheltenham & Gloucester and Lloyds will also get the cut passed on in full. Borrowers on variable rates with other banks and building societies are likely to see only a part of the cut passed on.

There is growing evidence that the cuts are starting to revive interest in London's housing market. Research by Google shows the number of property-related internet searches was 15 per cent higher last month than a year earlier.

Peter Rollings, managing director of central and west London agents Marsh & Parsons, said: "We have had 130 new buyers registering in the Pimlico office alone. These are people who know they won't get 90 per cent or 100 per cent mortgages, they are coming into the market with a fair chunk of cash.

"We are doing lots of viewings, it's the busiest it's been for a long time. There are lots of foreigners around, six of the properties we currently have under offer are going to Italians."

Mr Rollings said the market was about 25 to 30 per down on the peak with less desirable properties closer to 35 per cent below their summer 2007 values.