Many people are braced for change this week, as today (Thursday 4th August) saw the announcement of an interest rate cut. For the first time in more than 7 years, the interest rate has been cut from 0.5% to a record low to just 0.25%, impacting consumers, homeowners and businesses across the UK. A sharp reduction in the interest rate could dramatically impact several financial aspects of your everyday life, whether it be your savings or the wider economy. Keep reading for a short and informative blog post on how a cut to the interest rate could have an impact on you and your finances. Background A recent health check on the economy also revealed that since the Brexit vote, figures have shown the sharpest downturn in activity since the peak of the financial crisis seven years ago. Savings – Are they at risk? Recently many banks have been withdrawing their bonds with high interest rates, particularly those with a rate of over 1%. It has been suggested that savings rates could fall to virtually zero, as many banks are paying less and less. For example, a two-year bond at Lloyds is available with just 1% interest. There is no reason to think that negative interest rates could impact personal savings accounts, which is where a bank would charge you for keeping your money. However it has been suggested by many big names that shopping around for an alternative savings provider would be a wise decision. Borrowing It has been suggested that from September monthly costs could fall for borrowers with deals connected to the UK interest rate. This is extremely prevalent with mortgages. For example, Nationwide Building Society currently has just under 600,000 people with a “base mortgage rate” of 2% above the Bank base rate. The interest rate cut could impact borrowers in two ways. For example, if a borrower has a £150,000 mortgage with Nationwide, monthly repayments would be cut from £673 to £654. For those with interest-only mortgages, customers could see the cost drop from £313 a month to £281. The Wider Economy The interest rate cut could potentially weaken the pound further against other big currencies, which could lead to quantitative easing. This in turn could increase costs for holiday makers and raise the price of imports to the UK. Following this, inflation could rise too, creating an increase in day-to-day expenditures such as food. Banks do face a difficult balancing act. If interest rates are cut too far, there is a risk of causing damage to the financial sector and savers which would be counterproductive. Drastic changes could also cause panic in financial markets. As this is something that is constantly changing and being reported on, we will endeavour to continue to bring you updates on social media and our website. If you have any queries or concerns, please feel free to email me at JP@finnies.org.uk or call 01482 861919. About the Author Jonathan is an expert in the business start up sector and helping budding entrepreneurs grow. With a wide knowledge of accountancy, taxation and payroll, as well as leading accountancy packages such as Sage and Xero, he is keen to advise clients in better ways to use these to their advantage, making their business more efficient and effective and saving them time and money.