Bank of England Rate cut to 315 yr low of 1.5%

[Bensars]

I know its a difficult time for some with job losses and insecurity but this is a great bit of news.

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The Bank of England has slashed interest rates to 1.5 per cent, the lowest level in the Bank's 315-year history. The BoE's Monetary Policy Committee, which has been meeting for two days, cut borrowing costs by 0.5 per cent from 2 per cent to the lowest since the Bank was founded in 1694.

The MPC has now cut rates by a mammoth 3.5 percentage points since the beginning of October as concerns over a lengthy recession overshadow previous inflation fears.

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. Other lenders could follow suit.

Around 40 per cent of borrowers - more than 4 million homeowners - have a tracker mortgage.

Lloyds TSB and Nationwide had pledged to pass on the reduction to their standard variable rate (SVR) customers before the announcement while HSBC will also be cutting its SVR by the full amount.

But savers are also in the spotlight following the huge rate cuts seen so far - with those such as pensioners relying on savings to top up their income punished by the lower return on the nest-eggs.

On the rate cut, Stuart Porteous, head of group economics at Royal Bank of Scotland, said: "As rates head towards zero, policymakers will be forced to embark on ever more unorthodox measures to get the economy moving again. Listen carefully and you can almost hear the printing presses being cranked up."

And Howard Archer from Global Insight said: "We expect the Bank of England to cut interest rates again in February and to bring them down to a low of 0.25-0.50 per cent in the second quarter.

"Indeed, it is very possible that they could come all the way down to zero. In addition, it seems ever more likely that the Bank of England will engage in some form of quantitative easing over the coming months, in tandem with the Treasury."

The MPC's latest credit conditions survey warns that lending to households and businesses is set to fall further during the first three months of this year, despite a taxpayer-funded bail-out of the UK banking system.

It also weighed up a raft of gloomy economic data on falling house prices, as well as manufacturing and services activity close to record lows - despite hopes of an export boost from a pound hammered by the recent rate cuts.

Meanwhile, retailing casualties such as Woolworths and Zavvi have mounted on the high street as shoppers cut back.

And speculation is mounting that the Bank and the Treasury could agree a policy of so-called "quantitative easing" - effectively printing more money - to spur on the economy with rates approaching zero and banks still reluctant to lend.

The cuts have come because the MPC's mandate is to keep official inflation at 2 per cent. It is currently well above target at 4.1 per cent, but will fall dramatically as prices tumble on lower demand in a recession, while moves such as the Government's VAT cut add to the downward pressure.

[Donagh]

Not great news if you are trying to save a few bob.

[Bensars]

Well i would think that for the majority of the board, who have mortgages it may be welcome news !

edit. those in the six counties anyway. However its generally believed that the euro rate will also be cut next week

[full back]

Thought I heard on the radio that this cut wouldnt be passed on to mortgage holders?

[quit yo jibbajabba]

that was just Nationwide that announced they wouldnt be passing on any more of the cuts.....expect more to follow, though hopefully im wrong;

[Hereiam]

This cut won't be passed on due to the fact that the banks need to make money of these mortgages. If the interest rate falls to 0 i will be taking my money out and puttin it in the credit union. I feel if more of these banks were done away with it would be no loss. Anyone know what the current interest rate on a personal loan is a the minute in the 6 counties.

[armaghniac]

Well i would think that for the majority of the board,

there are more savers than mortgage holders in society, is Gaaboard different? Why should the thrifty lose their reward?

f the interest rate falls to 0 i will be taking my money out and puttin it in the credit union.

Mortgages will not fall much more. If banks don't offer 1-2% there is no real incentive to have money in any sort of savings account, people would just leave it in current accounts where it could be removed immediately and it is dangerous to match long term loans with funds that can be removed in seconds.

[bennydorano]

Interesting that despite the cut Sterling is still improving against the Euro, 2 or 3 weeks ago it would have plummeted.  An increase of nearly 6 cents this week is good news for Black northerners anyway.  Hopefully the worm has turned.

This cut won't be passed on due to the fact that the banks need to make money of these mortgages. If the interest rate falls to 0 i will be taking my money out and puttin it in the credit union. I feel if more of these banks were done away with it would be no loss. Anyone know what the current interest rate on a personal loan is a the minute in the 6 counties.

Standard loans are impervious to these interest rate cuts.  Loans af £1-3,000 are still about 12-14% odd depending on how hard you look. above that, anything over £5k would tend to be in around 7 or 8% apr, decreasing the more you want.

Credit Union is the boyo, 4% I think it paid for 2008 on savings, dont know what the loan rebate was.

[delboy]

This cut won't be passed on due to the fact that the banks need to make money of these mortgages. If the interest rate falls to 0 i will be taking my money out and puttin it in the credit union. I feel if more of these banks were done away with it would be no loss. Anyone know what the current interest rate on a personal loan is a the minute in the 6 counties.

Northern and Ulster bank have already come out and stated they will be passing on the cut to tracker and SVR customers.

[cavan4ever]

When rates are cut does this weaken the currency?

[delboy]

When rates are cut does this weaken the currency?

generally speaking, yes.

[armaghniac]

Northern and Ulster bank have already come out and stated they will be passing on the cut to tracke

They are obliged to "track" central bank rates with such mortgages. Anyone with such a mortgage is sucking diesel, but the bank is probably losing money on it!

[muppet]

When rates are cut does this weaken the currency?

As Delboy said generally yes. This is because wealthy investors may be able get better rates elsewhere. For example if the US is at 0% and the Eurozone is at 5% any international money will go to the higher rate and move out of the lower currency. The sell off usually weakens the currency with the lower rate and raises the one with the higher rate.

The reason we are seeing exceptions these days is that all rates are changing quickly and investors are anticipating rate cuts.   

[cavan4ever]

When rates are cut does this weaken the currency?

As Delboy said generally yes. This is because wealthy investors may be able get better rates elsewhere. For example if the US is at 0% and the Eurozone is at 5% any international money will go to the higher rate and move out of the lower currency. The sell off usually weakens the currency with the lower rate and raises the one with the higher rate.

The reason we are seeing exceptions these days is that all rates are changing quickly and investors are anticipating rate cuts.   

O.k  i have to buy some sterling but don't need it in a hury.  Would it be advisable to hold off for a bit or buy now.

[delboy]

Northern and Ulster bank have already come out and stated they will be passing on the cut to tracke

They are obliged to "track" central bank rates with such mortgages. Anyone with such a mortgage is sucking diesel, but the bank is probably losing money on it!

They are free to set their own SVR as far as i know (although it does usually follow the base rate or libor rate to a certain extent).