Base rate held as economy shows sign of improving

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The Bank of England has voted to keep interest rates at 0.5% and hold fire on pumping any more money into the economy through its quantitative easing programme.

 

The lack of further economic stimulus was hardly surprising, following news that the country might just be clawing its way out of recession.

 

Data released yesterday showed a surprise rebound for the UK’s services sector, which is vital to any economic recovery. Add to that a set of strong manufacturing figures, and there is (cautious) optimism that we might just be recovering from the 0.5% economic contraction we suffered in the second quarter of the year.

 

Of course this fledgling recovery may yet prove to be another false dawn, but it was enough to convince the Bank of England’s rate-setting committee not to tinker any further.

 

What does it mean for you?
In short, today’s announcement means that there’s more pain ahead for savers, while borrowers continue to prosper.

 

Ever since rates were cut to their record low three and a half years ago, savers have seen the amount they can earn on their cash plummet.

 

Long gone are the days of fixed-rate accounts paying over 6%. Now, only a handful of banks offer deals above 4% AER – and only then if you agree to lock your money away for five years.

 

And with talk of the base rate remaining at 0.5% until well into 2015 – with a possible cut to 0.25% on the cards in the coming months – the outlook for savers is pretty grim to say the least.

 

However, if you’re in the business of looking at the glass as half full, it’s worth keeping in mind that the fact top savings rates are well above base rate is quite unique.

 

In previous years, top rates tended to track 1% or 2% above base. Today, the top deals are around 4% – or eight times – higher.

 

Homeowners are quids in
At the other end of the money spectrum, the low base rate has been a boon for borrowers – specifically homeowners on variable-rate mortgage deals.

 

Their monthly repayments have plummeted to the extent that some are even paying less than 1% interest on their loan (for those of us who locked into fixed-rate deals at the wrong time, it’s a pretty galling fact).

 

Should the economy falter once more and the Bank opt to cut rates to 0.25% – which is certainly on the cards – their repayments will fall further still.

 

It’s a good time to borrow, and a bad time to save

 

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