0.5% rates 'for at least a year'

Experts have said that interest rates could remain at their current record low of 0.5% for at least a year as the Government waits for it to filter through the economy.

The predictions come after the Bank of England announced it would be cutting interest rates for a sixth consecutive time, this time by 0.5%, in a bid to boost the economy and get money flowing through the system.

Official borrowing costs have plummeted from 5% in October last year to just 0.5%, which has helped homeowners with a tracker mortgage deal, but has been little help to savers who are now receiving record low returns on their deposits.

At the same time as announcing interest rate cuts the Bank of England also said that £75 billion will be made available through quantitative easing measures, "printing money", as it pulls out all the stops to combat the recession.

As a result most economists believe a move closer to zero interest rates is unlikely as the Bank will want to wait for previous cuts and the quantitative easing to filter through to the wider economy.

The Bank's Monetary Policy Committee has previously signalled that deeper cuts could be counter-productive due to the added squeeze on banks' margins between deposit and lending rates.

Investec's David Page said: "We think (rates) have bottomed out, but a lot depends on how the economy evolves."

Although the rate cuts are bad news for savers the Bank has offered some positive predictions for the whole economy, saying the UK will make a rapid return to growth in the second half of this year, and with the recovery under way, rates could rise from their historic lows by mid-2010.

Mr Page added: "That's not to say that rates will go back to 5%, but the Bank will want to ease back from excessive stimulus levels."

However, Royal Bank of Scotland economist Ross Walker is not as confident that the growth will take place as soon as the Bank suggests and thinks rates will remain at their current levels into the second half of next year.