The Bank of England has announced a cut in its base rate of 0.25 per cent – a record low – from 0.5 per cent and has suggested that a further rate cut could also be rolled out later on in the year.
This move has seen lenders introducing changes to their own variable rates, which will see millions of borrowers registering a drop in their mortgage bills, the BBC reports.
The 0.25 per cent cut means that a typical monthly mortgage will see a reduction of £22, although just 1.5 million mortgages will be affected since this is how many automatically track the Bank’s base rate. People on fixed-rate deals (approximately half of all UK mortgage holders) won’t see any change where their mortgages are concerned. For savers, the decision means that they will see £25 less in interest each year for a £10,000 savings pot.
Speaking to the news source, Rachel Springall of financial information service Moneyfacts said: “It is easy to see that decent savings deals are facing slaughter: repetitive cuts are just not practical for all providers to continue, so the only option left to limit the amount of cash coming in is to withdraw the best deals entirely and not replace them.”
The Bank’s aim in mind when introducing this base rate cut is to allow banks to pass the reductions onto customers, so they have more free cash available to spend which will in turn stimulate the country’s economy. Many of the banks that have announced their own changes to variable rates say that the cut will take effect from the start of September.
Analysis from Which? has found that since the Bank decided to slash interest rates six years ago, 18 providers have either withdrawn their more generous accounts or reduced their rates. What’s more, a couple of lenders have even taken the decision to make even deeper cuts than the Bank itself. For example, Skipton Building Society has cut its rates on Isas and fixed-rate bonds by as much as 0.51 per cent. And Marsden Building Society’s easy-access Direct Saver will now pay out just 0.25 per cent, when it previously offered 0.65 per cent.
This is the first time that the Bank has reduced its base rate since the recession in 2008 in order to give the UK economy a boost following the negative impact that the result of the EU referendum had. It’s hoped that by introducing this rate cut, demand will be boosted in the economy and businesses will be further encouraged to invest, while consumers will be driven to both borrow and spend. The consequences of this would likely be supporting the GDP, as well as employment and living standards for the general public.
However, given the current environment in the UK, it remains to be seen just what results this interest rate cut will actually be able to deliver.
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