Is the Bank of England punishing the prudent?

Voltaire (1694 -1779) was a mere glint in his Father's eye when the Bank of England set base rates at 2 percent

The Bank of England has never had a lower base rate of interest. Not once, in over 300 years, has the Bank offered money more cheaply.

For an institution that predates the birth of Voltaire, the Bank’s decision to shave another 1 percent off base rates is historic. The last time interest rates were this low, Winston Churchill was still prime minister.

What does this mean for you? That depends on who you are.

If you have a tracker mortgage (that moves with the BoE’s base rate), then you’ll have more money in your paycheck at the end of the month. You’ll get additional breathing space to go with that being prepared by the government should things turn out poorly.

(That said, many tracker mortgage providers have ‘floors’ that are activated if the base rate falls through it. Which it has. For example, Nationwide’s tracker floor is at 2.75%, so many customers wont see too much of a pass on.)

If you want a new mortgage, it might take a little longer for banks to start offering money at previous levels. But a little creepiness from Mandy should sort that.

If, however, you’re one of those increasingly rare breed – known as ’savers’ – this rate cut is most unwelcome. People who have worked hard and put money aside for this torrentially rainy day will have found their income cut by more than half over the past month.

There are questions that need answering. How does the government hope to wean us off debt culture when the central bank is ramming virtually free money into our hands? Why should people who took out mortgages they knew were too expensive profit when prudent savers are set to lose out?

The City has welcomed the Bank’s decision. The government will now position itself as the party of financial fairness by pushing banks to keep lending. And we will probably now spend slightly more over Christmas than we had planned.

Was it Voltaire who said,

Everything’s fine today, that is our illusion?