Emergency base rate cut is "unprecedented economic shock therapy", says Martin Lewis
The Bank of England has cut the base rate from 0.75% to 0.25% in an emergency response to the 'economic shock' of the coronavirus outbreak.
Please feel free to use select quotes or use this briefing in its entirety, fully attributed to Martin Lewis, founder of MoneySavingExpert.com.
Martin Lewis, founder of MoneySavingExpert.com, said: “This is extraordinary, unprecedented economic shock therapy – interest rates as low as they've ever been for hundreds of years. The fact the Bank feels the need to do this shows the level of seismic coronavirus tremors running through the nation's finances.
“The primary aim is economic stimulus. Reducing interest rates is an encouragement to spend and invest – it makes borrowing cheaper, and saving less attractive. And that's what they want – more money flowing through the economy.
“I suspect this is primarily targeted at business, but it of course has a personal finance impact. While our first actions and thoughts need to be for the health of the nation's vulnerable – the impact on people's pockets can't be ignored.
“The financial winners are those on variable and tracker rate mortgages. They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage (use the MSE mortgage calculator to work out your exact reduction, see www.mse.me/mortgagecalc). And while it'll take a week or two to factor through, it's likely we'll see the rate of new mortgage fixes drop too – meaning it will then be a very cheap time to remortgage.
“Most loans, credit cards and other debts will likely be unaffected or only minimally affected because the Bank’s interest rate only plays a small part in their rates.
“The losers are savers. Many who've worked hard to build up a nest egg will be holding their head in their hands at this news. Savings rates have already been plummeting this year, and this will massively increase the height of the roller coaster fall.
“A rate cut has been expected, but not as big or quick as this. As fixed-rate savings tend to be offered in tranches – ie, a firm will have planned to bring in £10m, until they fill that amount the rates won't drop – so quick movers may be able to bag top 1 or 2 year fixed-rate savings today before the rates fall. (See www.mse.me/topsavings).
“For everyone else the advice is simple. Currently the average UK saver earns just 0.4%, while the best easy-access accounts pay 1.3%. All these rates will likely drop. Yet at the very least make sure your money is in the top payer, not the poorest.”