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Base rate falls to 0.5%

5 March2009

The Bank of England today cut its base rate to 0.5%, in another move aimed at reviving the economy by stimulating lending to businesses and individuals.

The half-point cut is the third in three consecutive months, after the base rate was cut to 1.5% in January and 1% in February.

The base rate cut means that the wholesale cost of funding is cheaper for lenders, which in theory should make lending money a more attractive option to financial institutions.

However, following February`s base rate cut, several lenders said they were unlikely to respond significantly to any future cuts. Meanwhile, many analysts have argued that base rate cuts are no longer an effective measure, and may only serve to disadvantage savers, who could suffer from lower returns on their savings.

A debt expert for Think Money said: "Homeowners could potentially benefit from lower mortgage payments, making their mortgage debt more manageable, but people who rely on interest from savings may find themselves worse off than usual."

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