The Bank of England is expected to cut interest rates to the lowest level in its 315-year history when it makes its monthly decision later.
Bank rates are currently at 2%. The Bank’s Monetary Policy Committee is tipped to announce a reduction of between 0.5 and one percentage point.
This would be the first time since the Bank was founded in 1694 that rates have fallen below 2%.
Treasury sources have said the move was not currently on the agenda but it had not been ruled out.
It is possible that if interest rates continue to fall that interest rates on our savings could go negative.
Negative interest rates, where the bank charges us to look after our savings. This previously occurred in the 1970’s with Swiss Banks. Foreign customers had to pay the bank for them to hold their money.
If the rate was -1% then someone depositing £10,000 would get back just £9,900 at the end of the year, effectively paying the bank £100 for the privilege of holding their money for them.
Patrick Foley chief economist at Lloyds TSB has commented saying while it is not impossible it is very unlikely that this will happen, however 0% interest is more likely for a short period of time.