Tonight:
9°c
1.5 per cent - lowest interest rate in history
Jonathan Prynn, Consumer Affairs Editor09.01.09
INTEREST rates were cut to the lowest level in history today.
The Bank of England ordered a further 0.5 per cent reduction from its base rate to an unprecedented 1.5 per cent.
It has never previously been below two per cent since the Bank was founded in 1694.
But only half of borrowers will benefit and millions of savers will be hit by a further cut in the return on their investments.
The Bank's rate-setting Monetary Policy Committee said in a statement it was making the move because "the world economy appears to be undergoing an unusually sharp and sychronised downturn".
The pound strengthened against the euro after the noon announcement as some City traders had expected a one per cent cut.
Rates have now fallen by two thirds in two months since the severity of the economic storm became apparent in the autumn.
There was immediate scepticism about the effectiveness of the move in boosting the economy.
Many experts said it would do little or nothing to stop the collapse in property values and would not encourage consumers to spend. Analysts said between 40 and 50 per cent of borrowers would benefit.
The vast majority with tracker mortgages will get the full half point passed on. Many on standard variable rates will also benefit as major lenders Cheltenham & Gloucester, LloydsTSB, HSBC and Nationwide said they would pass it on in full.
Business leaders warned that the bigger problem threatening the economy was the lack of lending from banks rather than the cost of borrowing.
Justin King, chief executive of Sainsbury's, told the Standard: "It is up to the Bank of England to do what they think is right, but what our suppliers are saying is that what they have to pay to borrow is not the issue, it is that there is no money being lent in the first place."
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Reader views (18)
It seems the Bank of England (MPC) has lost its independence and is now under the influence of a reckless government (or Prime Minister) doing anything to stay in power. Perhaps the Standard can organise a petition for people to demand protection for their savings and a fair rate of interest.
Printing money and giving savers nothing for their carefully saved money is destructive to this country's long-term future. It is not going to restore confidence or get investment going in the UK.
- Steven, london
Its better for borrowers to have 1% interest under Team GB than the 18% under Major Disaster!!
As for savers perhaps its time to switch to ERNIE?
- Melvyn Windebank, Canvey Island, Essex
Cease this whinging pessimism.
Recessions come and go as do bull markets. Sure it will be tough for the next couple of years. However, those who were prudent enough to live within their means during the good times will survive and a hard lesson will be learnt by those who did not. It is what capitalism is all about. Come 2011 economic recovery will be well on the way and the next year we will have the Olympics to look forward to.
- Lionel, Isleworth, Middx
It`s always the same thing with a Labour government,it destroys the country!!!!
- Mark A, london england
I see Shabby Abbey have yet again declined to commit cutting their standard variable rate again. Like last months cut they hold off announcing they will not pass it on until the heat is off and it is no longer headline news. They must be the worst lender in the UK.
- George, London
We are lost. This apparently has not happened for hundreds of years and Crash Gordon is still saying he is controlling this foreign crisis?!
- Jacqueline, Hampstead, London
Serious problems on the way. The Financial
Train is on the track, and is coming fast. And when it hits the buffers, this country
will not be in a good shape. They expect savers to spend, Im a saver but I can tell you I am too worried to spend. So any action this government is doing is not making me spend. In fact it makes me go the opposite way and hold on to what I have got. Reproduce my attitude by millions of savers, and where will that leave us. Sorry Mr Brown I have no faith in you or your policies at all. I know I am going to need my money for a later date.
- Adynamo, scunthorpe
So another gift of Taxpayers money to the Fat Cat Bankers so they can have their Nice Pay Bonuses without any worries. It must be good at the top with all of us lowly savers to Bail them out at every mistake they make, don't have to think at all. Lets see if we can really drive this country into the ground once and for all, and make suer you eat up every last bit as well. If you can see it have it.
- Enuff, london
15% VAT has had little effect.
Interest rates will have little effect.
Pumping money into the banking system has had little effect. Sure it stopped a few from collapsing but they should collapse naturally otherwise the taxpayer will have no exit strategy for years to come.
Nothing can prevent the economic downturn until it has run its natural course to weed out all the weak businesses & greedy consumers who gouged on unlimited credit.
Once the dust settles in about 1.5-2 years those left standing both politically & in business will have to ensure a more healthy growth model than the one which was partially responsible for this mess. Human nature means you must have tighter regulations to ensure this never happens again.
- P, London, England
Banks and financial services have called the tune 'no regulation, nanny' , for years.
When it all goes pear-shaped they then blame nanny and demand to be be baled out by her [us] like the bunches of greedy, spoiled brats they have turned out to be.
- Weathereye, Essex UK
The Bk of England under huge pressure from the politicians have thrown all credibility out of the window. I thought they were independant?. Take interest rates to zero, but even my gold fish knows that is lunacy. Who is going to lend money at zero %? I might as well buy myself a few goats and load up on tins of baked beans, at least they will have some 'real' value, unlike the dross that paper money is becoming. No one in history has become rich through debt, so whats different this time? Career politicians trying to save the world and their inflation proof jobs.
- Bondy, london
Gordon's lap dog, punishing the majority for the sake of those who did wrong in the first place by borrowing (remortgaging etc) more than they could comfortably afford if things went pear shaped, as they were bound to do given the lack of control of the triumvirate, chancellor, BoE and FSA, who were asleep at the helm although at least one saw the gathering storm clouds, but the others were not listening.
I do not absolve the banks from blame, they must accept their measure of blame, but not all their fault, direction that should have been given wasn't by those supposedly with our interests as their primary duty.
However Gordon was raking in the money, which he needed desperately, so it was not in his interests to slow things down.
I have little doubt but that extra money has already been printed, otherwise why the steep fall in the value of the pound. Yes, some, because of the lack of faith in the policies, but not that much. Preamble to Gordon slipping us into the euro (for our good he will claim, more lies)?
The trouble is we won't know for the next 30 years until papers released.
Sack the Govt, with loss of benefit and pension because of their gross negligence and fraud, Lisbon etc.
- Hugh, Middx
All this will do is put the pound in even more trouble, and hurt savers. Even the Bank has now lost the plot - we really need a general election - NOW.
- Mark Burton, St Ives Cambs
And savers penalised again for other people's bad lending, borrowing. Why be prudent and save at all with rates at 1.5%.
- Stephen, London, UK
What bumbling incompetence by Mervyn King pandering to New Labours failed attempts to change the face of our once great country and I foolishly understood the Bank of England was to be independent!
- Steve Morgan, Surbiton
It is not in the MPC's gift to miraculously restore the economy to good health, for the benefit of savers or borrowers. The value of sterling and equity has been hollowed out by a bubbled economy. What the MPC can and must do is take effective steps to forestall deflation. It's no more the Bank of England's fault that the value of savings has diminished than that the value of property and shares has fallen. We are all worth a lot less than we thought we were.
- Blackstone Coke, London
This is pure panic and likely to make any real difference. If interst rates for savers drop in line the Conservatives proposed tax cuts are worth sweet FA!
- Michael, London
If businesses are closing who wants to borrow just because of a small reduction in interest? The likely fall in profits far outweighs any reduction in interest. You are trying to 'push on a string'.
It's just window dressing so Brown can be seen to be doing something.
- Mike Newland, London
