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Clare Francis: The Bank of England's Monetary Policy Committee (MPC) has voted to cut interest rates by a half of 1 percent today. This takes bank rate from 5% to 4.5% and the decision comes 24 hours earlier than expected. It just illustrates the gravity of the financial crisis that's gripping the world at the moment - not only has the Bank of England cut rates today but so too has the US Federal Reserve, the European Central Bank and other Central Banks around the globe.
The tide has turned significantly in recent weeks. When the MPC met last month inflation was rising and we were told not to expect interest rate cuts in the near future. Inflation is currently 4.7% and it's expected to hit 5% this month, way above the 2% target - that's on the back of recent energy price hikes. However the worsening economic situation clearly shows that the MPC is now more concerned about avoiding recession than it is about inflation.
The decision to cut rates today is obviously good news for borrowers with tracker rate mortgages - they'll benefit fully from the rate cut. Hopefully those with discounted products will also benefit but discounts are linked to the lenders standard variable rate so any changes will be at the lenders discretion.
But what does all this mean for those looking for a new mortgage at the moment? Over recent weeks we've seen lenders hike the cost of mortgage rates because of increased borrowing funds due to the financial crisis. Is the decision to cut rates by half percentage point today likely to see a reduction in rates for those needing a mortgage right now?
Louise Cuming: As far as borrowers are concerned the news today is really, really welcome. I think the market generally was expecting a quarter of a percent cut so to see a cut much larger than that has got to help confidence in the market. Obviously for people on existing tracker mortgages or discounted mortgages they will feel the benefit straight-away, however because the Government are really putting so much emphasis on wanting to support the market this larger cut I think will also start to translate into existing products, and we may well start to see some good news there as well.
Clare Francis: We've had some clarification on this situation this morning which gives some reassurance to these savers. ING Direct, the Dutch provider, has announced that it's buying the savings book of Heritable Bank and that of Kaupthing Edge, another Icelandic provider. Icesave customers aren't being rescued by ING but this doesn't mean that anyone will lose any money. You can claim up to £50,000 back through the Financial Service Compensation Scheme (FSCS) and the Government this morning said that it will refund anything above that for people who have got more than that in their account.
The savings market remains in turmoil but savers are being urged not to panic. You can get some more information on what's happening in the savings crisis by reading our latest articles that are on the site now.
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