The Bank of England Monetary Policy Committee has cut the base rate by another half of one percentage point to a record low of 0.5% and begun so-called ‘quantitative easing’.
The central bank voted to undertake a programme of asset purchases of £75 billion financed by the issuance of central bank reserves.
The Building Societies Association criticised the decision, saying it will harm savers and will further restrict funds available to borrowers.
Adrian Coles, director-general of the BSA, said: Today’s decision is a kick in the teeth for savers who will see their already diminished interest payments fall even further. It will be felt hardest by the many elderly people who have saved responsibly all their lives and are reliant on their savings interest to maintain an acceptable standard of living in retirement.
“It will also harm the aspirations of the many people who are finding it difficult to get a mortgage , particularly first time buyers with relatively small deposits. Lower interest rates reduce the incentive to save, and in turn, this limits the flow of funds into the mortgage market.
“While the decision will be of benefit to some borrowers on variable rate or tracker mortgages, the reduction in repayments that they will see will not outweigh the negative impact that the reduction in mortgage funding will have on the market as a whole.
“We do, however, welcome the Bank’s announcement to implement quantitative easing and we share the Government’s hope that this will increase the flow of money in the economy and lessen the severity of the downturn.”