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By Rachel Jones
Know Your Money Editor

The Bank of England's monetary policy committee (MPC) cut the interest rate on Thursday (December 4th) by one percentage point, reducing it to two per cent, the lowest it has been since 1951. Indeed, on making its decision, the Bank noted: "Consumer spending and business investment have stalled, while residential investment has continued to fall."

But just like the previous cut on November 6th, questions have again been raised by people in the UK. Some have asked if there is any point to a cut if lenders do not pass it on to their customers. Those with savings could feel as if they have been hit in their pockets once again. As such, some financial commentators have highlighted the fact that many lenders have terms in the small print of their tracker mortgage contracts which state that if the interest rate should drop below a certain level, the cut will not be passed on. So how exactly does this affect the average Briton?

Homeowners and mortgages

In response to the cut, the National Association of Estate Agents urges lenders to pass the low rate on to customers. Indeed, such action - combined with the government's recently announced mortgage support scheme - should provide a much-needed boost to the property market. Commenting on the MPC's decision, the organisation says: "This cut, in reality, won't do enough unless the banks play fair and pass the cut on to the homeowner.

"Low rates will increase confidence in the market but will not increase mortgage approvals. Bringing buoyancy back to the market lies not only with low interest rates but crucially also in new lending. [The] government and lenders must do more to encourage first-time buyers on to the property ladder in order to reverse the current downturn in the market."

But will Britons enjoy the benefits of a two per cent interest rate in their mortgages? Last week, Nationwide, the Royal Bank of Scotland and HBOS shaved less than one per cent off their main mortgage rates, although Lloyds TSB, HSBC and Barclays say they will pass on the full cut.

But what do savvy savers get?

While an interest rate cut may be good news for first-time buyers, what about savers who have put money aside and find themselves faced with yet another lowered interest rate? Fixed-rate savings accounts could be one answer for consumers, although the offer does not last in the long term and will revert to a reduced level after a certain amount of time.

"By the middle to end of next year at the very latest, savings account rates - and their premium over the base rate - will be a lot lower. The banks are building their deposit levels and once that's done there will be no reason to pay the rates they do now," Anna Sofat from financial firm Addidi Wealth tells the Independent.

However, Alliance & Leicester reports that its RewardSaver account combines a variable rate of three per cent gross per annum, while its online products include its eSaver, which stands at five per cent and is suitable for long-term savings. As such, faced with a cut, many savers have rushed to seek out the best fixed-rate savings products.

So are the banks playing ball?

With the nationalised Northern Rock refusing to pass on the full interest rate, it could be said that not all lenders are following prime minister Gordon Brown's advice to pass on the reduction. Indeed, the Liberal Democrat's Treasury spokesperson Vince Cable says: "The government should recognise some banks are having to borrow money at rates well above [the] Bank of England base rate. To force these banks to pass on the full rate cut would mean them lending at a loss."

As such, customers signed up to its standard variable rate (SVR) will see interest charges reduced to 5.34 per cent, a half a percentage point decline. Indeed, the BBC notes that although lenders should move their tracker rates in line with the Bank rate, they are allowed to price their SVR products as they wish. And with warnings that savers will lose out on the cut if they do not act fast - indeed the Telegraph notes that savings account rates of five per cent will not be around for long - Britons may once again need to take hold of their household's debt management and ensure that they have enough money put aside if the rate should increase once again.

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