The move to lower savers' rates by Halifax, which cut up to 0.35 percentage points off interest rates, sets a new benchmark for the market, and leaves Skipton Building Society isolated after it raised its mortgage rate by 0.5 percentage points to 11.25 per cent earlier this week.
Woolwich and Portman building societies also said they would be cutting rates, but the details will not be announced until next week. This follows reductions in savers' rates from Nationwide, Bradford & Bingley, Alliance & Leicester and Britannia building societies, and National Westminster Bank.
None of these lenders are moving their mortgage rates.
Mike Whitehouse, operations director at Halifax, blamed continuing pressure on operating margins for the cuts. 'The alternative of increasing mortgage rates is not realistic. Borrowers are already carrying a heavy burden. Interest rates need to be judged against an inflation rate of about 4 per cent. Interest rates in the economy are unrealistically high.'
But Abbey National said it had no intention of cutting savers' rates. On pounds 500 Abbey pays 7.5 per cent compared with Halifax's new rate of 7.15 per cent.
John Bayliss, managing director of Abbey, said he thought National Savings were still competitive, even after the rate cut. But Abbey could work with its present margins. 'I don't have to cut savings rates, and I'm not going to,' he said.
Building societies had a net outflow of pounds 314m in June and will shortly report the July figures - reflecting the impact of the launch of the FIRST Option Bond by National Savings. These are expected to show an outflow of nearly pounds 500m - the worst monthly figures for six years.
They will bring the building societies into net loss for the first seven months of the year.Reuse content