Mixed feelings over record low base rate

Following the February Monetary Policy Committee meeting the base interest rate in the UK was cut by 0.5 percent to a new historic low of just 1 percent. This is the lowest that the base rate has been since the Bank of England was founded over three hundred years ago. However, hopes that this will aid economic recovery are not harboured by all officials and groups.

Homeowners that see their monthly mortgage repayments fall as a result of the base rate cut will be pleased, but savers will be horrified to see that they are earning little to nothing by way of interest on their money. The Building Societies Association said that this could severely affect deposits and could affect the access that lenders now have to funds to finance mortgage lending.

The Federation of Small Businesses was also of the opinion that the base rate cuts would now no longer help to boost the economy, stating that what was needed was improved access to finance for industries. Over 60 percent of FSB members said they would have preferred improved access to finance than another interest rate cut.

The FSB said: “These figures suggest that the recent interest rate cuts are not having the desired effect and other means of economic stimulus are required.” However, one economist said: “The Monetary Policy Committee is right to cut Bank Rate to 1%, even though some question the merit of doing so without greater effort to increase the availability of credit to hard-pressed businesses.”