A comprehensive list of the new UK tax allowances and thresholds for 2020 / 2021
Along with the Bank of England (BoE) cutting base rate from 0.75% to 0.25% this morning, the Monetary Policy Committee (MPC) also voted to introduce a new Term Funding Scheme with additional incentives for small and medium-sized enterprises (TFSME). This follows on from previous schemes such as Funding for Lending and an earlier Term Funding Scheme, the latter of which is due to be repaid by the banks in 2022.
The new TFSME will have a four-year term and is expected to release more than £100 billion in funding. This funding is aimed to encourage banks to provide cheap lending to businesses and can also be used to support lending to individuals, through mortgages and loans.
The MPC has introduced these measures as part of their response to the Covid-19 emergency, which the BoE describes the impact of as “an economic shock that could prove sharp and large but should be temporary”. The BoE has said its new measures announced today will help to support additional lending and provide insurance against adverse conditions and bridge the gap through a period of economic disruption.
The reduction in the base rate is aimed to reduce the cost and increase the availability of finance. For this to be effective, the BoE wants banks and building societies to continue to lend. Its concern is that with savings rates at historic lows, many will not be able to reduce the cost of savings any further. This is supported by data from the Moneyfacts Treasury Report, which shows the average rate for a one-year fixed bond has reduced on in the past 12 months, from 1.46% to 1.17% in February 2020. Savers will be more than aware of the number of rate reductions that have happened in 2020 so far and the lack of savings accounts available that have rates able to compete against inflation.
The Financial Policy Committee (FPC) has also announced a change to the UK countercyclical buffer rate from 1% to 0% of banks’ exposures to UK borrowers with immediate effect. This will last for 12 months and the release of capital is all part of continuing to encourage banks and building societies to keep lending.
Rachel Springall, finance expert at Moneyfacts.co.uk, said “In the short-term, the base rate reduction is likely to see more banks and building societies trim their savings rates in the coming days and weeks. Savers should prepare themselves for the potential of further interest rate reductions and for the continuation of reduced competition or even stagnation.
“This potentially could include changes to both rates available on open accounts and those accounts closed to new savers. Savers should be careful to check for alerts from their bank or building society about changes in their savings rates.”
The cost of borrowing, in particular mortgages, is expected to reduce quickly. However, this will only immediately improve the pockets of those mortgage borrowers on tracker rate mortgage deals. New mortgage rates for fixed deals should also see some reductions although with rates already very low these reductions may be quite small. Banks are also expected to reduce the cost of personal loans, while rates for overdrafts and credit cards are expected to remain the same.
Moneyfacts.co.uk will be tracking the rate reductions and changes coming in and will provide further updates.
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