The rationale for the latest cut in interest rates to 1% is primarily based on the sharp slowdown in advanced economies, however the emerging markets are showing increasing signs of their vulnerability to the global downturn. In Britain, the MPC reported that output dropped sharply in the fourth quarter of 2008 and similar trends can be seen as we move our way through 2009. One saving grace is that inflation has dropped to 3.1% in December according to the Consumer Prices Index and is estimated to fall below the 2% mark by the second half of the year.

So how will a 1% interest rate impact you? There are certainly strong implications for both savers and borrowers. For a small proportion of borrowers this signals good news as many high street lenders are passing on recent rate cuts in full.

It is savers that are really going to feel the pinch as many rely on the interest they receive to survive such as retirees and pensioners. In the UK for every borrower there are around six savers and they will now start to really see their income drop as saving rates plummet. However there are still a few deals on the market offering savers around 3.5%.

The falling interest rate is also a contributing factor to the decline in Sterling. Importing businesses will see huge rises in prices due to the weakening exchange rate while for exporting companies it will act as a catalyst for demand from overseas.