The Department of Finance has confirmed that the UK has lowered the interest rate on its bilateral €3.5 billion loan to Ireland.

This reduction was agreed by the Chancellor of the Exchequer in principle in July 2011 and the details were announced in Westminster today.

The Department of Finance would not say definitively what the saving would be,

But it did say that it was included in the €10 billion interest saving on the bailout programme announced last summer.

Mark Hoban, Financial Secretary to the Treasury, told MPs in Westminster today that the new interest rate is the UK cost of funds plus 0.18%, with the cost of funds calculated on the average UK borrowing costs.

Based on today's rates that would give an approximate rate of 0.95%.

The Government has drawn down €1.5 billion of the €3 billion loan so far and the interest rate reduction will reply retrospectively.

Britain's Chancellor George Osborne has always insisted Ireland should not be forced to pay punitively high interest rates.