The Bank of England has announced the current Bank Rate is 0.25 percent – having been slashed from 0.75 percent. It comes ahead of the Budget 2020 – which is taking place later today – and amid the outbreak of coronavirus, with Public Health England confirming that as of 9am on March 10, 2020, 373 people have tested positive for coronavirus in the UK.
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Of these people, six people who had tested positive for COVID-19 have died.
The Bank’s Monetary Policy Committee said: “Although the magnitude of the economic shock from Covid-19 is highly uncertain, activity is likely to weaken materially in the United Kingdom over the coming months.
“Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.
“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”
Following the news, members of the public may wonder what the decision means for their personal finances.
So, from mortgage rates to savings and pensions, what have the experts said on the temporary measures?
Sally Francis, money expert at MoneySuperMarket, commented on how savers and borrowers should respond to the interest rates cut, and said: “The drop in the Bank of England base rate takes us back to the historic low level of 0.25 percent seen during the financial crisis.
“It is a drastic step and could have significant implications for anyone who is a borrower or a saver.
“If you have a variable rate mortgage, you may see your rate decrease. Mortgage rates are already low though this could mean they fall further – good news if you’re looking to switch to a fixed deal.
“If you’re on a fix already, check early exit penalties before switching – it may work out costlier even if the rate is cheaper.
“For savers, the news isn’t so welcome. Saving rates have been low for a long time and this cut could lead to further reductions in rates.
“People will need to compare rates and make sure their money is earning the best return possible in this low interest rate environment.
“Monitor your rate, compare other rates, and switch when your accounts aren’t paying the top rates available.
Paresh Raja, CEO, Market Financial Solutions, commented: “The Bank of England’s decision to cut interest rates is not wholly surprising given the actions of other central banks in recent days.
“For property owners and first-time homebuyers, this means there is a brief window of opportunity to secure a competitive mortgage with low interest rate repayments.
“For those relying on a traditional bank account to build up their savings, however, this latest cut will come as a blow. Interest rates have been hovering below one percent for over a decade, making it extremely difficult to build a sizeable savings pot in a traditional savings account.
“This latest news will no doubt compel many to re-evaluate their current investment strategy and consider what could be done to ensure they are not being negatively impacted financially by trending events like Coronavirus.”
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Meanwhile, Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco, said: “For a central bank to cut rates on the morning of a Budget is an extraordinary move that reflects the gravity of the Covid-19 situation unfolding.
“Over the past 48 hours a growing number of lenders have come out and said they will support homeowners with payment holidays due to the coronavirus threat but this takes things to a whole new level.
“Borrowers on a tracker rate will see an immediate benefit but savers will inevitably feel the squeeze.
“Strangely this does not necessarily mean rates will come down as lenders will be pricing in the fact that their own staff levels may be low in the weeks and months ahead and they may not be able to cope with the increased demand.
“Lenders will be in a tailspin this morning as they seek to get their heads around this drastic move from the Bank of England. We are living in truly unprecedented times.
“On a commercial level, this emergency rate cut by the Bank of England will put even more pressure on lenders that are already struggling with slim margins.”
Some may wonder what the temporary measure means in terms of their retirement.
Steven Cameron, Pensions Director at Aegon commented: “We hope the emergency 0.5 percent cut in the bank’s base rate will support businesses and consumer confidence through the coronavirus crisis.
“This should reduce the cost of borrowing for businesses and individuals during what we hope will be a short term period of disruption.
“It does, however, pose particular challenges for those approaching retirement.
“The recent fall in the stock market will mean those whose pension is primarily invested in stocks and shares will have seen their pension pot fall in value.
“The reduction in interest rates creates a double whammy as annuity rates are also likely to be cut.
“As a result of the pension freedoms, individuals with defined contribution pensions now have flexibility over when they start taking a retirement income and can choose to remain invested, drawing an income, rather than buying an annuity.
“While there is no guarantee around if and when fund values and annuity rates will bounce back, individuals about to retire might want to seek advice on their options, including potentially deferring locking into annuities at a particularly adverse point in time.”
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