Poll: Is the Bank of England right to cut interest rates to 0.25% to avert a Brexit recession?

While earlier this year there was the faintest glimmer of hope for savers that the rate could be set to rise, that has now been thoroughly squashed.

Instead, the Governor of the Bank of England Mark Carney yesterday slashed the central bank's base rate again, to a new record low of 0.25 per cent.

What that means is that when banks borrow money from the Bank of England, that is the rate of interest they pay.

Mr Carney also took the lid off £60 billion of new cash, or quantitative easing, for banks to get the economy moving, taking the total new cash pot to £435 billion, aimed at encouraging lending.

The rate is, in theory, passed on to members of the public when it comes to saving and borrowing.

So if you take out a loan or a mortgage, the rate you pay will be informed by the base interest rate, and if you have money in savings, the return you receive on that cash will also be influenced by the base rate.

A cut, like that introduced yesterday, is designed to get the economy moving.

A cheaper lending rate should make it easier and more enticing both for bosses who want to get hold of extra cash to grow their business, and for individuals wondering whether to borrow some cash to buy a house, say, or a car, or to invest in repairs on their existing home.

That's because the lower interest rate should make borrowing cheaper, and the latest announcement by the Bank of England should lead to more attractive deals for loans and mortgages. Santander was quick to tell its borrowers they would benefit from the cut, and from September its existing mortgage customers who pay the standard variable rate will see that cut to 4.49 per cent.

So if we imagine that a borrower has taken out a £100,000 loan on a house, over 25 years, their monthly payment will fall next month from £570 to £555.

However, the rate cut will sting savers, who will be receiving even less for their money at the new record-low rate than they already were for the last seven years.

Pensioners, too, whose annuities are linked to the Bank of England interest rate, will see their lump sums reduce in value.

"With the much anticipated reduction in interest rates now confirmed, borrowers can relax in the knowledge that their monthly mortgage payments are likely to remain at incredibly low levels and even reduce further, for some time," said Philippa Gee, who runs Philippa Gee Wealth Management in Church Stretton.

"The problem is for savers, as the reduction will have a very quick negative impact on their finances and will turn their income headache into a migraine.

"I would suggest all savers need to shop around even more, however they should also tread carefully of moving money into something that offers a higher return at a higher risk."

She added: "Savers need to be very canny in how they manage their money and simply going to your existing bank, who offer convenience, is not an ideal solution. Those who are willing to monitor deals and put in some work, will be rewarded most.

"The low interest rate environment is not going away and squeezing every percentage point out as a return will be crucial."

Bill Brookes from Shropshire estate agents DB Roberts, said he was not sure that the new rate would necessarily bring about better mortgage deals for new borrowers, and as such the news would have little effect on a housing market which remains relatively buoyant.

"I don't think it will make a lot of difference," he said. "It's not the bank rate that will influence buyers, it's the effect it will have on mortgage rates, and apart from to stabilise them I don't think it will do that.

"There's already some of the best rates around, with some below two per cent, and I can't see they have any margin to reduce that further."

The reason for the interest rate cut is that in the wake of the economic uncertainty brought about by the outcome of June's EU Referendum, the central bank has also cut its forecasts for Britain's economic growth, and Mr Carney warned that could lead to job losses.

The Bank kept its growth forecast at two per cent for 2016, thanks only to a far better-than-expected 0.6 per cent rise in the second quarter, but it sharply reduced the outlook to 0.8 per cent in 2017 and 1.8 per cent in 2018.

It had previously predicted growth of 2.3 per cent in both 2017 and 2018.

The pound dropped by more than 1.5 cents against the dollar on the news, falling to 1.31 US dollars.

But the FTSE 100 rose sharply, moving into positive territory and hitting 6,702 points.

Mr Carney warned that the changes needed in the economy following the Brexit vote "may prove difficult and many will take time".

But he insisted: "The UK can handle it."

The central bank boss said policymakers had delivered a "timely, coherent and comprehensive" package of measures and that the rate cut would be felt "immediately in the economy".

What does interest rate cut mean for mortgages?

What will a further cut in the Bank of England base rate to a new low of 0.25 per cent mean for home-owners and those trying to get on the property ladder?

Will the mortgage deals on the market now get even cheaper?

Years of low interest rates mean that mortgage rates have already hit record lows, thanks to a series of mortgage price wars erupting between lenders. And it is not just rates that lenders have been competing on as the battles have heated up. More than 1,200 mortgage deals currently on the market have no arrangement fee to pay – compared with just 394 deals five years ago, figures from Moneyfacts.co.uk show.

So will mortgage rates now get even lower?

While there is the potential for rates edging down further, the extent to which this happens may depend on how much wriggle room lenders have to do this. It is also worth bearing in mind that the base rate is only one factor lenders take into account when deciding what rates to offer.

Apart from the base rate, what else do lenders take into account when setting mortgage rates?

Factors include a lender's own costs of borrowing from sources such as savers and other banks – and the costs will differ between lenders. Rates also depend on the overall way the mortgage deal is put together as a whole package and any fees that come with the mortgage are also taken into account when setting rates for the deal. Lenders also factor in the risk of someone defaulting on their deal. While lower rates mean borrowers are less stretched when making their repayments – and are therefore perhaps less likely to default – the uncertain economy could mean added risks from someone missing their repayments.

What will happen to my existing mortgage payments?

That depends on what type of deal you are on. Some mortgages are directly linked to the base rate but others are not. More than 1.5 million existing mortgages are bank rate trackers, according to industry estimates. In general, the rates on these deals track the movements of the base rate, plus a certain percentage margin specified by the lender. A quarter percentage point cut in the base rate could shave around £26 a month off the mortgage repayments of someone with a £200,000 loan over a 25-year term, according to the Council of Mortgage Lenders. But this would depend on the base rate cut being passed on in full to the borrower. Many people nowadays are on fixed-rate deals, and so they will not see an immediate impact. Around nine in 10 new mortgages being taken out are fixed rates.

What impact could the base rate cut have on the housing market?

Mark Hayward, managing director of the National Association of Estate Agents said cutting interest rates further is likely to improve confidence among prospective house-buyers who may have put their search on hold, following the Brexit vote. But he warned that would-be home buyers could have a tougher time saving for a deposit, with returns on savings so low. He said: "The outcome of the rate cut is simple – we will see aspiring homeowners saving harder for longer, which will no doubt have an impact on the number of first-time buyers succeeding in acquiring their own home."