UK reduces interest rates to 1%

[puffin]

he Bank of England has reduced interest rates to a record low of 1% from 1.5% in an attempt to boost the slowing economy, as widely expected.

This marks the fifth interest rate cut since October, as the Bank seeks to encourage more lending.

The decision comes after official data showed the UK had entered a recession in December, after two quarters of shrinking economic growth.

But some business groups argue rate cuts will not ease the economic crisis.

Following the rate cute Paul Broadhead of the Building Societies Association (BSA) told the BBC "savers are being punished" and the move could hinder the funds available to societies to lend as mortgages.

Base rates have now come down from 5% in October.

news.bbc.co.uk/1/hi/business/7871932.stm

I'm not sure that it's a sound move. I can see anyone with a bit of cash moving it out of the uk to get a better return and banks and building societies having evn less money available to lend.

[yord]

lol banks dont lend savers money , they lend imaginery money which miraculously turns into virtual debt

[sushimo]

Actually, I went against all the advice and left my maximum holding in Premium Bonds - so far it was a very wise move, I am winning more now than I ever did before. £600 in the last 4 months, giving me an average 6% return tax free.

All the 'experts' said to cash them in as the returns would be zilch, but I just knew better! ;D

[tarrant]

So you're the one winning all the bond prizes

Hmmm

[sushimo]

Only the little £50's Tarrant, but many of them, and they do add up - would like a few more 0000's, but I'll settle for winning and beating the odds just now.

[Libby]

Great news Sushi! Lucky you! I don't think my measly £5 Premium Bond will bring much reward my way! lol! I've had it since i was a child, only found it the other day, didn't even know i still had it!

[flatandy]

Another few quid off my tracker mortgage.

[peakman]

Feb 5, 2009 12:40:04 GMT yord said:

lol banks dont lend savers money , they lend imaginery money which miraculously turns into virtual debt

Are we the only two who can see this. 1% zero % whatever. What next? Not only will we give you an interest free loan, (first repayment in 12 months time) we will pay you 1% up front for your business. Have a very good day.

[Victor Meldrew]

What a load of crap. The rate can be anything the Bank of England wants it to be. 1% is going to be no different to 1.5%.

It's not the cost of borrowing which is the problem, it's the availability of the funds. They can bring it down to zero if they like, but if there's no liquidity in the system, and no one's borrowing to the Country's businesses, it means f*** all.

So what is the effect of this latest cut? Well Andy's happy because he gets a few quid off his tracker mortgage. Most people with tracker mortgages though will not benefit, because their rate had already hit the floor below which it no longer tracks the base rate. The most common type of mortgage is fixed rate, and these people have had no benefit from any of the cuts.

On the savings side, it now means saving in this Country is almost completely worthless in the general high street savings accounts. Maybe people should be looking at moving savings to overseas institutions offering higher rates of interest, but only if those accounts have the same underwritten guarantees of protection as they'd get in the UK.

There are also many pensioners who rely on monthly savings interest to top up their pensions to live. They will now be down to their basic pension only now. No doubt they will need to dip into their savings to survive, which will give them even less of a return. When that money runs out, many will probably need to apply for income support, so the taxpayer picks up another burden.

1% is just a number which will have no beneficial effect for the people who need help, and will just hit savers. Even if funds are available, no one can borrow at that rate from commercial institutions. As an example, I'm sure I've been seeing adverts on TV from Lloyds offering unsecured loans at 7.9%? That was when the B of E's base rate was 1.5%. With the cut today, I reckon they will now be offering those loans at, er, 7.9%.

[puffin]

Meanwhile at Barclays.

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[sushimo]

Victor M is spot on. For those that think this is magic, just wait until pensioners have no savings left and start claiming benefits. Needing money for care homes, home helps - all the things they saved for so they could afford to look after themselves. That is going to rocket the social services bills to unbelievable levels.

What a flaming shambles.

[yord]

your still 6 months away from feeling the impact

[cheyenne]

"...banks dont lend savers money , they lend imaginery money which miraculously turns into virtual debt"

Absolutely correct, yord.

Or put another way, banks lend money that doesn't exist and then charge interest on it.

I guess I'll just be spending the rest of my meagre savings then, at the moment it would appear I'm paying the bank to look after it for me. Not long to retirement, so I'll just claim a few benefits, seeing as my savings will have all gone by then.

[Libby]

Feb 5, 2009 14:14:02 GMT sushimo said:

Victor M is spot on. For those that think this is magic, just wait until pensioners have no savings left and start claiming benefits. Needing money for care homes, home helps - all the things they saved for so they could afford to look after themselves. That is going to rocket the social services bills to unbelievable levels.

What a flaming shambles.

I agree with you sushi, it's a bitter sweet pill - people are being fooled!

[justmyopinion]

"Meanwhile at Barclays." - Puffin

Barclays makes £5billion profit despite difficult trading conditions - hmmmmm

[justmyopinion]

A reduction to 1% is pointless.

Credit card interest rates ahve not fallen, some have risen. Mortgages have fallen but most will have hit a bottom threshhold at around 3%, savings as a result are not being spent to stimulate the economy, they are being salted away or used to pay off debt.

Lending may be going up but there are fewer lenders in the pool so the amount of money available is lower. Deposit rates follow interest rates, therefore people don't put their savings into banks - Government Bonds offer 5% by comparison.

Bankers still earn bonuses as they are often included in personal contracts, being described as variable pay and "..you just can't take a part of expected take home pay away from people.." Radio 4 quote at 0835 this morning..

[sushimo]

"..you just can't take a part of expected take home pay away from people.."


Yes you can, sack them for incompetance - or shoot them.

[Deleted]

I don't think Brown minds if the bankers get 100 k.
He gets 45k back in tax or thereabouts so he still wins.
Plus they may buy a new car which helps commerce.

[dwad]

Whilst I have a tracker mortgage and so a vested interest I think people are being very quick to dismiss this.

The main problem with Lending is not so much mortgages but the Libor rate at which banks lend to each other. While this is not inextricably linked to the BOE rate, it is linked to some degree and previous falls have been echoed in the Libor on a couple of week's delay.

This will eventually free up credit for small businesses again. At least it might.

[flatandy]

I've noticed the prices on loans have now begun to fall. They're not down with the same relation to BofE base rates as they were a year and a half ago, but they're now beginning to shift again.