“This was a swift move from the Bank of England in an attempt to support the UK economy amid the Coronavirus turmoil, but the unanimous vote to slash rates back to the lowest point in history will shock some at how quickly it happened," says AJ Bell Personal Finance Analyst, Laura Suter.
"The move, which takes rates lower than in the financial crisis, is the first unscheduled interest rate change from the Bank of England since the banking crisis 12 years ago. The cut to 0.25% also leaves minimal ability to slash rates further in the future.
“The move is coupled with support for businesses, with a new term funding scheme and relaxing bank credit rules to get more help to businesses, in an attempt to help small companies through the disruption, slower sales and potential shutdowns that may be caused by Coronavirus. This gives an indication of what is to come in Rishi Sunak’s first Budget later today, with further help for businesses and even a business rate holiday suggested as a helping hand for companies.
“However, while the package of measures will help businesses they will be light relief for individuals, who are unlikely to see a big impact from the cuts. Mortgage rates are already near record lows and it’s unlikely providers will be able to cut them much more – let alone pass on the entire rate cut. The exception is those on tracker rates, who will see a near-immediate effect on their monthly repayments.
“What’s more, savers who have already seen a swathe of cuts to the interest they get on their cash are likely to be hit further. The top rate you can get on an easy-access cash account at the moment is 1.3%, far below the current rate of inflation, and this now looks ripe for another cut following today’s move. Cash savers will feel they’ve been dealt another blow after years of being clobbered with below-inflation rates – meaning they are losing money in real terms.
“However, the potential cut to interest on debt could come at a crucial time for some. One in 8 adults have no savings at all and 45% of the population have less than £2,000 in cash - so if Coronavirus starts to hit people’s earnings we could see a big rise in the level of debt people have to take on just to pay the bills. If the rate people are paying on this debt falls it could provide some support at the edges.”
These articles are for information purposes only and are not a personal recommendation or advice.
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