UK Interest Rates Set To Hit All-Time Low

The Bank of England is set to vote for another interest rate cut on Thursday this week, bringing the base rate to below 2% for the first time since the central bank was founded in 1694.

If the central bank’s Monetary Policy Committee (MPC) does cut rates, then January will be the fourth consecutive month the base rate has been reduced; in October it fell by 0.5% to 4.5%, in November the MPC unveiled a surprise 1.5% cut to 3% and in December it voted to lower rates by 100 basis points to just 2%.

But the MPC has indicated that rates need to fall even lower. The minutes from their December meeting show the nine members did discuss cutting rates by more than 1%, but eventually ruled this move out amid fears it could signal a lack of confidence in the economy and damage the value of the pound.

Lower interest rates may be designed to help consumers weather the financial storm, but all the evidence suggests that borrowers are still not fully benefiting from cuts.

According to data provider Moneyfacts, one month on from December’s 1% cut and many banks have been quick to slash savings rates but altogether slower to reduce mortgage costs.

It reports that 77% of providers have cut their savings rates with the majority opting to pass on the full cut or more.

In contrast, Moneyfacts says that while 76% of mortgage lenders have announced a cut to their standard variable rate (SVR), only 19 lenders have opted to pass the cut on in full.

Almost three-quarters (72%) of those that have announced opted to pass on between 0.15% and 0.99%, amongst them some of the UK’s biggest mortgage lenders.