The Bank of England has cut interest rates for the first time in seven years, as a result of poor economic data in the wake of the referendum result.
Mark Carney, the Bank governor, announced a reduction from 0.5 percent to 0.25 percent. The cut was approved unanimously by the nine members of the Monetary Policy Committee.
It has also reduced its growth prediction for 2017 from the 2.3 percent it was expecting in May to 0.8 percent. This is the biggest cut to its growth forecasts since it started making them in 1983.
“Economic data since the referendum have weakened sharply. There is a real need for more stimulus now” – Samuel Tombs, economist
The last time the Bank cut interest rates was in March 2009, at the height of the financial crisis. The rate cut is intended to boost the UK economy in the wake of the vote to leave the European Union.
“Economic data since the referendum have weakened sharply. There is a real need for more stimulus now,” says Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Winners and losers
Cuts to interest rates are traditionally good news for borrowers. Those on a tracker-rate mortgage will benefit from the reduction. However, in 2015 almost 90 percent of new loans were fixed-rate. Those on fixed-rate mortgages will not gain from the cuts.
Savers will lose out as the best savings deals will disappear. Rachel Springall of Moneyfacts.co.uk says: “Repetitive cuts are just not practical for all providers to continue, so the only option left to limit the amount of cash coming in is to withdraw the best deals entirely and not replace them.”