The Building Societies Association (BSA) has urged the Bank of England not to cut the interest rate any further when they make their decision this week.

The base rate currently stands at 1.5 per cent, but analysts believe this could fall to one per cent on Thursday.

Although the falls have helped some borrowers, particularly those on tracker or variable mortgages, savers – especially pensioners who live off their savings – have been hit by sharply falling returns.

Adrian Coles, director general of the BSA, said: “The reductions, from
5.75 per cent prior to the run on Northern Rock in 2007 to 1.5 per cent have seen incomes from savings drop by almost 75 per cent, although the full impact of the base rate cuts has not actually been passed on to many savers.

“This drop in income is particularly serious for pensioners who have saved all their lives and now face a sharp reduction in their income and living standards.

“For pensioners dependent upon their interest income from their savings rather than their pension, prices would have to fall by an unimaginable 75 per cent for them to maintain their living standards.”

Building societies, which have always relied on depositors income more than the banks for their lending activities, are concerned savers will be discouraged by the falling interest rates.

“We need to ensure that those with at least some capacity to supply funds for mortgage lending – personal savers – are encouraged to do just that, and that requires the MPC to refrain from making further cuts to the Bank Rate at least until the impact of recent reductions becomes clearer,” Mr Coles added.

The Bank of England’s monetary policy committee (MPC) meets this week to discuss whether to change the base rate to stimulate the economy and prevent deflation. A decision is expected to be announced on Thursday.