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Savers will be hit hard by yesterday's interest-rate cut as they see returns on nest eggs shrinking. The average variable instant access account now pays 0.9% on savings of £2,500, compared with 3.9% six months ago, according to Andrew Hagger, of Moneynet.com.
"Savers' confidence has all but evaporated and those who previously relied on a monthly income from their nest egg are now having to dig into their capital, which is shrinking rapidly before their eyes," Hagger said. "With an estimated six savers to every borrower, it is the majority who are once again getting a raw deal, after nine rate cuts in 15 months."
Many savers reacted with dismay, with some warning they would no longer be able to afford daily living expenses.
While some lenders, including the Halifax, Nationwide Building Society, Lloyds TSB, and C&G, immediately announced they would pass on the full 0.5% cut to borrowers on their standard variable lending rates, others said they were looking at ways to reduce the impact on savers.
Yorkshire Building Society, whose savings customers outnumber its borrowers by a ratio of eight to one, said that with the last four base-rate reductions, which totalled 4%, it has reduced its average savings rate by an average of 3%. It calculates that over the course of a year its savers will be more than £70m better off.
Iain Cornish, chief executive at the society, said: "It is those who rely on their savings interest to boost their state pension who are really starting to suffer. RPI may be at its lowest level for a long time but that does not help pensioners pay their council tax bill or cope with heating costs."
Barclays pledged to hold its savings rates at pre base-rate cut levels, even though 70% of its borrowers had base-rate tracker mortgages. However, most estate agents and property analysts were pessimistic about the effect of another base-rate cut on the housing market.
Miles Shipside, director at Rightmove.com, said: "The interest-rate cut is good news for both those homeowners on tracker mortgages and those looking to move. However, for the market to return to a state of normality we would repeat the need for sensible loan-to-value ratios and income multiples to be made available to buyers, at reasonable interest rates."
Karen Moore* is one of those who fears for parental savings. Her parents use the money for care home fees of £1,390 a week - money that could run out before their home can be sold to raise further cash. "We have been trying to sell their bungalow for months, and although we now have a buyer, it's taking a long time to go through. Every time the interest rate goes down, they have less money to pay their nursing home fees. We're down to £20,000 now - enough for another 14 weeks."
At the other end of the age scale Warren Murray and his partner are saving for a house. "It's very difficult because even though the banks are being encouraged to lend you can't actually take a mortgage unless you've got big enough savings. And your savings won't grow because you're only getting minimal interest. It's a never-ending circle."
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