The Bank of England has voted to cut the interest rate by 50 basis points to just 1% in February, despite concerns that savers will suffer.
The central bank’s Monetary Policy Committee (MPC) has now cut the interest rate for five months in a row, from 5% in October to just 1% today.
Andrew Hagger, spokesman for Moneynet.co.uk, says February's cut will hurt millions of savers.
"The full impact from the 0.5% cut on 8th January has only just filtered through and leaves the UK savings market in a sorry state, with almost a quarter of variable rate savings accounts (£500 balance) currently offering a virtually irrelevant return of 0.1% or less," he adds.
"The incentive to save based on interest rates has all but evaporated, it’s purely the thought of being made redundant that is driving people to still salt some money away."
Average savings rates are expected to fall to just 0.31% as a result of the cut. This means that people with just under £3,000 in their accounts will earn less than £10 a year in interest.
Louise Bond, personal finance manager at uSwitch.com, says the cut is the "final nail in the coffin" for savers: "Going forward, if we experience one more decrease this year it could mean 0% savings rates for consumers."
Housing experts say that the cut is also irrelevant for most borrowers, as lenders demanding big deposits are a bigger barrier to home ownership than the cost of loans.
Miles Shipside, commercial director at Rightmove, says: “We have found that despite the doom and gloom, the majority of consumers hope to buy in the next year, though February's cut is relatively insignificant to most prospective buyers, as reluctant lenders are placing other hurdles in their way. Lack of mortgage funding is the issue, no longer the level of the base rate."
He adds: "If mortgage lending criteria were relaxed, repayments would be cheap enough to tempt many more buyers back into the market as the combination of cheaper loans and lower property prices has transformed affordability compared to 12 months ago. Lenders are not yet in a mindset or financial position to fund a substantial increase in demand for mortgages.”
Mortgage brokers agree. Robert Sinclair, director of trade body the Association of Mortgage Intermediaries, says: [Our members] continue to be disappointed at this focus on cutting rates, which has a limited short term impact on most borrowers.
"The most economically vulnerable do not have mortgages and many on fixed rates will not see benefits for some time. Savers continue to suffer under this blunt instrument."
And Michael Coogan, director general at the Council of Mortgage Lenders, warns that while tracker rate mortgage borrowers will benefit, it is doubtful whether this cut will help banks increase the amount they lend.
"It will not be a surprise if banks and building societies try to prioritise savers in this very low interest rate environment," he adds. "For borrowers who remain in employment, affordability is unlikely to be an issue at the moment."