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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

4 Aug 2016

Confirmed Base rate cut today

As expected, the news has just come through that the Bank of England has officially cut it's base rate for the first time in nine years, halving it from 0.5% to 0.25%.
Predicted growth in the UK economy has not materialised, and the Bank of England GDP forecast for 2017 has been slashed from 2.3% to 0.8%, citing changes in the 'economic outlook'. In effect pointing towards Brexit as a major factor.
The BoE has introduced other measures to go alongside the latest interest rate drop. A £60bn quantitative easing package has been announced alongside rulings that will more or less force the banks to pass on the base rate cut to their borrowers.
It has been calculated that the average mortgage saving will be around £20 per month, but it should be noted that only around one and a half million mortgages actually track the base rate. I am happy to say that my own mortgage does, but on the other hand, I have an endowment which will not meet the repayment target. Where I am saving on interest, I am paying extra off the principal to help to close the gap between likely endowment outcome and the principal amount owed.
An endowment is, of course an investment, so how will the interest rate drop affect investments? Simply put, if you had £10,000 invested, a 0.25% drop means you will receive £25 less than previously which should mean you get a measly £40 or so for your hard-earned cash. I can remember the days when you would expect to make a grand from a ten grand pot, so saving your money seems almost pointless if you are hoping to live off the interest.
The positives here are obvious for (some) home owners, but overall, with a falling GDP and little return on money in a deposit account, the general economic mood is not overly positive. That said, we are not currently on target for another recession, and there is every indication that there could be another base rate cut, which could leave us with an unprecedented zero percent base rate

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