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In a widely anticipated move, the Monetary Policy Committee of the Bank of England has today cut the Base Rate to an unprecedented 0.25%.
As a result, borrowing will be less expensive. The estimated 1,500,000 households with tracker mortgages will see an immediate benefit and the expectation is that new property buyers will also gain from a reduction in long-term interest rates.
The rate cut is also aimed to encourage business investment in these times of economic uncertainty. This is reliant on the banks reflecting this reduction in their business borrowing rates.
Given the warning issued by the Royal Bank of Scotland to their 1,300,000 million business customers that they may impose charges on the deposit of funds should the Base Rate turn negative, there is a considerable doubt whether the rate cut will be passed on.
However, as part of the package of measures to support growth and to return of inflation to the target level, the Bank of England announced a new Term Funding Scheme potentially worth £100 billion to support bank lending to companies.
In any event, there is little evidence of businesses looking to borrow in the current economic climate. The uncertainty created by the Brexit vote is fast becoming a reason for inertia whereas it could be a time when fortune favours the brave.
The potential losers will be savers and those with pension annuities who are likely to see a reduction in their income.
This weekend, we will be publishing a newsletter reviewing of the economic state of the nation six weeks on from the EU Referendum vote.
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