Please, no more cuts, beg hard-hit savers

05 March 2009 / by Rachel Mason
If the Bank of England cuts rates again today, it will hit savers hard and do very little to help anyone else, say experts.

Research from has revealed that so far this month providers have already cut rates on savings accounts by an average of 0.50 per cent, taking the average rate down to just 1.08 per cent. And this is before any rate cut today – speculation suggests the BoE will cut rates down to 0.50 per cent – is taken into account.

And for some banks, there is nowhere left to go; Newcastle Building Society and Ulster Bank are currently offering rates of just 0.01 per cent, which in real terms is a return of 28p for the average saver.

And the argument that cutting rates will help the fledging mortgage market is becoming less and less convincing, as so far, savers have felt the hit while borrowers have received little respite.

In fact, the Building Societies Association (BSA) says cutting the rate again would be "bad news for almost everyone connected to the savings and mortgage markets."

The BSA is urging the BoE to leave rates alone, because, it argues, not only would a cut hit savers once again, but it would also have a negative knock-on affect on the mortgage market – mortgage lenders "are being forced to further cut back on lending, as savings inflows decline," says the BSA.

According to the BSA's director general Adrian Coles, the BoE should be injecting cash into the economy, not cutting rates.

"If the Bank of England wishes to make a contribution to a recovery in the housing and mortgage markets, it should not cut interest rates this month," he warned.

"We need to encourage an increase in the flow of funds into the mortgage market, not take steps that would further restrict that flow," he said, and urged the BoE to decipher if previous cuts have actually helped before making any more.

"The Bank needs to fully assess the impact of the dramatic decisions on interest rates made so far before cutting Base Rate further," he said.

"If the Bank feels further action is now necessary, quantitative easing would be much preferable to a further rate reduction, as it would increase the flow of funds in the economy, and make it easier for deposit-takers to attract funds."

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