Savers banking on extra help (From Bournemouth Echo)

Savers banking on extra help

9:20am Friday 9th January 2009 in

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THE wrath of savers will follow the latest reduction in interest rates by the Bank of England’s Monetary Policy Committee (MPC), according to a Poole accountant.

Julian Smith, partner at Princecroft Willis LLP accountants, which has offices in Poole and the New Forest said: “Those relying on income from investments will remain particularly gloomy and borrowers may not see the benefit passed on to them.

“The 0.5 per cent interest rate cut is less than many had predicted and will not be universally popular.

“The cut reflects an element of caution, with some leeway for a further reduction.”

Peter Scott, chief executive of Dorset Business (the Chamber of Commerce & Trade), said: “The rapid worsening in economic circumstances since the last MPC decision justifies the move, but it should have been more draconian.

“There is some doubt in my mind about current discussions regarding ‘quantitative easing’ (effectively the government printing money) as a legitimate tool in order to ensure that the economy does not slide into a prolonged depression.

“Locally, we want to see less in the way of high street brands evaporating and job losses, and businesses being offered a programme of credit-crunch-busting advice and activities – to which the chamber is wholeheartedly committed.”

However, banks continue to be the bugbear for many and Nigel Smith, managing partner of Ellis Jones Solicitors, which has offices in Bournemouth, Canford Cliffs, Ringwood and Swanage, said: “The banks have really got to pull their fingers out and pass on the reduction in full to borrowers.

“There is mounting government frustration, shared by many in the business community, that the banks are just not playing their part.

“It’s like the Bank of England is trying to push down the accelerator pedal but someone – in this case the banks – is keeping their foot firmly on the brake.

“Until that changes, I really don’t see that reducing interest rates is going to bring about the improvement that everyone wants to see,” he said.

Borrowers with Nationwide Building Society, which has its administration centre at Richmond Hill, Bournemouth, will benefit from the reduction after the lender promised to reduce its standard variable mortgage rate by half a percentage point, in response to the cut.

Interest rates now stand at 1.5 per cent, the lowest since the Bank of England was founded in 1694 and if they continue to fall, they will approach zero, when the Bank of England will lose its independence to set monetary policy.