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Your Money > Savings Articles > Interest Rates Cut
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By Donna Werbner
The Bank of England has cut interest rates by 0.5%, bringing the Bank of England Base Rate down to 4.5% - the lowest it's been for more than two years. The move comes in spite of the fact that inflation continued to rise this month, hitting 4.7%. That's 1.7% above the Bank of England's target of 3%. The Chancellor Alistair Darling told BBC news reporters earlier this week that, although the Monetary Policy Committee has a remit to keep inflation under control, it has also has a wider duty to support the Government's economic objectives. The cut has been matched around the world, with the US Federal Reserve, the European Central Bank and three other central banks (in Canada, Sweden and Switzerland) also cutting rates by 0.5%. This means the Fed's benchmark rate is now just 1.5%. What does this mean for you? Well, it should in normal times - mean bad news for savers. Savings providers may well start cutting rates to reflect the lower Base Rate. On the other hand, previous drops in the Base Rate in recent times have not been reflected in similar drops in savings rates. This is because the freeze in the money markets is still causing havoc for banks, making them eager to lure in your cash. Similarly, it should if the financial world hadn't gone a little bit crazy in the last year mean good news for mortgage borrowers. Rates should normally come down following a Base Rate cut. However, in the current climate, when banks are so reluctant to lend to each other, it is unlikely to make such difference. The Government's bail-out package is where it all counts on that score. But certainly, if you're on a tracker, it's great news: your mortgage payments will go down by 0.5%. On a £160,000 mortgage that tracks the Base Rate at BBR + 0.25%, that's an extra £46 a month in your pocket. Who knows what's going to happen next... Useful links:
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