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Pensioners and other savers will suffer if there is another cut in interest rates, building society bosses warned yesterday as they urged the Bank of England to leave base rates at their record low of 1.5%.
Amid expectations that the Bank's monetary policy committee will announce a drop in base rates to 1% on Thursday, the Building Societies Association also warned that low savings rates could deter depositors which in turn would deter building societies from granting more mortgages.
Adrian Coles, director general of the BSA, warned that the consecutive cuts in rates from 5.75% before the run on Northern Rock in 2007 had led to savers suffering a 75% cut in income.
Coles said: "This drop in income is particularly serious for pensioners who have saved all their lives and now face a sharp reduction in their income and living standards. For pensioners dependent upon income from their savings rather than their pension, prices would have to fall by 75% for them to maintain their living standards."
The cuts to interest rates have led to lower mortgage rates, but Coles stressed that the problem for homeowners was not the ability to make mortgage interest payments but to obtain a mortgage.
"Mortgage availability, rather than the cost of mortgages, has become a more pressing issue over the last few months," he said.
"Building societies and their subsidiaries were responsible for 62% of net lending in the fourth quarter of 2008 - a further reduction in interest rates now will make people even less likely to save and further disrupt the flow of funds into the mortgage market, which is already significantly short of lending potential."
He said the monetary policy committee should "refrain from making further cuts" to ensure that savers are encouraged to save to enable building societies to maintain the flow of funds for lending.
Data from analysts at Credit Suisse shows that 77 mortgage deals were withdrawn last week and that there was a further fall in the number of mortgages for customers with deposits of less than 20% of the value of their home.
Economists are forecasting a cut in interest rates to help stimulate the economy which in the fourth quarter of 2008 experienced its largest fall since 1980.
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