Debt Advice Bureau Tells Bank of England, "Don't Cut the Base Rate Tomorrow"

Published Wednesday February 4th 2009.

Debt Advice Bureau today called for the Bank of England’s Monetary Policy Committee (MPC) not to cut the base rate when it concludes this month’s two-day meeting on Thursday.

Stephen Rose, Debt Advice Bureau director, said:

"Whilst a further cut will undoubtedly benefit lenders of all sizes and types, as they are able to bolster their bottom line even further, the impact on the general public is likely to be considerably less beneficial.

"Further cuts in the base rate are unlikely to offer any relief to those with credit card debts, who have unsecured loans, have fixed rate mortgages or tracker rate mortgages which have hit their collars. This means only a fraction of the total money owed by consumers will be benefit. Everyone else with debts will see no change.

"Savers on the other hand will likely see another large reduction in income as the interest rates on savings are cut again. In particular this will come as another body blow for those who rely on interest earned to supplement income, such as pensioners, who have already seen interest income drop by 50% and more in the last four months. This whilst some essential living expenses have stayed high, and even risen, in part caused by the collapse in the pound.

"The problem for those looking to borrow, be they businesses, prospective first time buyers or those simply needing to refinance, is the lack of available credit. Wholesale funding is no more. Savers are now the source of money for many lenders. Savers need to be encouraged, which means they need a reason to save. If interest rates fall so low that savers earn only negligible interest as a result, then there is no need for them to take the risk of lending their money to the banks in the form of deposits. And then, where will banks turn?"

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Notes to Editors:
1. Debt Advice Bureau is a not-for-profit debt advisory service which has been provided free and impartial debt advice since 1999 and on the web since 2001. It is a remote service providing advice primarily by internet, as well as by phone and post.

Contact details:
Name: Stephen Rose
Phone: 08700 11 11 13

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