UK sees the lowest interest rate since 1694 - 8th Jan 2009

As widely expected, Bank of England’s  Monetary Policy Committee (MPC) reduced the UK interest rates by a further 0.5 %, bringing it down to 1.5 %. Some analysts are disappointed that the rate cut was not a full percentage point. Bank of England is hoping that cheaper credit will entice consumers to go out and spend more.

This is the lowest interest rate since the Bank of England was formed in 1694. The interest rate has come down by a staggering four points since September 2008.  The new rate will mean that if applied, a £100000 interest only mortgage will be £41.66 a month cheaper.
Cheltenham and Gloucester, HSBC and Nationwide has already announced that they will cut their standard variable rate reflect the rate cut.

As there are only a small number of people who are on standard variable rates, this rate cut will not make any difference to the mortgage payments of millions of borrowers. Some lenders have a “floor” on the tracker rates which means that after a certain point; they will not lower the interest rates any further, irrespective of the rate cuts by the Bank of England. Borrowers on fixed rate will not see any reductions in their mortgage payments.

Savers are another group which is adversely affected by the rate cut. It is well known fact that some lenders are reluctant to pass a rate cut to the borrowers, but implement the rate cut for the savers almost immediately. Some savers have seen their income from savings drop by almost 60 %.

The interest rate cut will put further pressure on GB Pound and that could result in higher costs for imports which can result in higher prices for imported goods in the shops. It will help the UK manufacturing as the export will be cheaper and this will help the UK to compete with other providers on price.

Most analysts believe that the interest rate cut is not going to be the “magic bullet” to revive the economy as lenders are still reluctant to lend money to individuals and businesses.
In a separate move, some credit card companies are raising their interest rates. The latest is the American Express which raised interest rate on some of its cards to 19 %.