Record low interest rates on cards
Fresh gloom was predicted for millions of pensioners and savers this week with interest rates set to hit a record low as the Bank of England grapples with a deepening recession.
Fresh gloom was predicted for millions of pensioners and savers this week with interest rates set to hit a record low as the Bank of England grapples with a deepening recession.
The Bank's official rate has never fallen below the current two per cent in its 315-year history, but experts predict a cut of as much as one per cent on Thursday as the UK faces up to its worst year since the early 1990s. That is bad news for savers, especially pensioners who rely on the cash they have put away for decades to pay for a comfortable retirement.
The Easy Access Savings account with National Savings is now paying less that two per cent interest, while even the best-buy savings accounts are paying less than five per cent. Many savings accounts with the big banks are said to be paying less than one per cent interest after tax.
At Black Country minnow The Dudley Building Society, chief executive Geoff Caves said they were now trying to ignore decisions by the Bank of England's rate-setting Monetary Policy Committee.
"In order to try and maintain a decent return for our savers, of around 3.5 per cent, we are trying to keep our mortgage rate at around 5.5 per cent," he said.
"But the Bank and the Government are unbalancing the whole market by pumping money into the big lending banks and continually cutting rates.
"I don't think another rate cut on Thursday will do anyone any good. There is hardly anyone out there trying to borrow money to move home at the moment."
There was a record 16.2 per cent fall in house prices during 2008 and, despite Government attempts to kick-start lending, banks and building societies anticipate a further tightening in credit to individuals and firms in the first three months of this year, according to the Bank's latest credit conditions survey.
How much homeowners and borrowers will gain from any rate cut remains to be seen after building society Nationwide said it would invoke a "collar" clause enabling it to stop reducing rates on most of its tracker mortgages.
Minutes of the MPC's December meeting showed policymakers discussed cutting rates by more than the one per cent but held back for fear of an "excessive" knock to the pound and confidence in the economy.
