Image - AP Photo - Matt Dunham
The Bank of England has voted to hold the base rate at 0.5% and pump an additional £25 billion into the economy at its meeting today.
Known as quantitative easing, the controversial plan of creating and then buying back assets from banks and other institutions is aimed at further stimulating the ailing economy.
The Bank has already pumped almost £175 billion into the markets but last month voted last month to hold off on extending the plan, so today's decision could be seen as a sign that the Bank feels a further boost is needed to push the nation out of recession.
No change on base rate front
The decision to hold the base rate at a record low 0.5% for an eighth consecutive month was widely expected as it is yet another way of spurring the economy and getting people spending.
But the low rate environment has been brutal on savers in particular and many have been wondering when the Bank will raise rates again.
A poll of more than 5,000 MSN Money users shows most people expect any such move to be delayed until well into next year.
A significant 43% said summer was the most likely time, while more than one in three felt it would be 2011 at the soonest.
An optimistic 22% believed the economy would be strong enough to warrant a rate rise as early as the start of next year.
MSN MOney
What do the professionals think
In an earlier article, one of our contributors questioned a number of industry analysts about the issue of base rates.
Nick Beecroft, senior foreign exchange consultant at Saxo Bank said in August he expected rates to move up by 0.5% by next March and by a full 1% by next June.
However, he hastened to add that it could easily be longer: "You only have to listen to the governor of the Bank of England to know that the economy still faces severe headwinds. The real concern now is deflation and I wouldn't be at all surprised if the base rate stays at 0.5% until the end of 2010."
Geoff Tresman, chairman of Punter Southall Financial Management, agreed. "The Bank of England has no other choice but to leave the base rate alone until at least the middle of next year. But I think we will be stuck with low rates until the back end of 2010," he said.
What does it mean to you?
So with rates almost certain to remain subdued for the near future, what does this mean to you?
Savers will continue to struggle to find competitive rates, although there has been a recent upswing thanks to increased competition for cash by the banks.
The winner of the continued low rate environment will undoubtedly be those on variable mortgages, who have been enjoying lower mortgage repayments for some time now.
What can savers do?
Obviously you want to earn the best possible rate on your hard-earned cash, which currently means choosing a fixed-rate account. But choosing a top-paying fixed deal right now could end up hurting you in the long run.
Why? In order to get a decent rate of return (around 5%) you will need to lock your cash away for up to five years.
The problem here is that savings rates may well rise significantly between now and then (the base rate won't remain this low forever), leaving you on an uncompetitive rate and facing heavy penalties for early withdrawal.
A better idea might be to opt for a shorter term one or two year deal and see what accounts are available upon maturity. These accounts generally pay between 3% and 4%, so while it's not quite as competitive, it's still comfortably above inflation.
Could the fact that this government has recently allowed all those over the age of 60 to pay into their ISA's an additonal 1,500 pounds, before the end of this tax year be where the additonal money is coming from to pump back into the economy?
Err, no apart form the fact that such money does not go into the wider economy unless the banks lend it to each other the amounts just don't add up if a million people over 60 put 1500 into an ISA it would be - 1.5 bn - about 20 times too little. The big problem with this move is the the bank is simply printing more money on the back of the government promises.