Savers suffer again as Bank of England holds rates at record low
INTEREST rates have been held at their record low by the Bank of England, leaving little sign of a boost for savers with money languishing in traditional products.
The Bank of England’s monetary policy committee held the base rate at 0.25 per cent on Thursday and separately predicted inflation would hit its two per cent target this year, 2.7 per cent in early 2018 and 2.6 per cent in early 2019.
The central bank has left the possibility of interest rate changes open, stating that monetary policy can respond in “either direction.”
“If spending growth slows more abruptly than expected, there is scope for monetary policy to be loosened,” the central bank said in its inflation report.
“If, on the other hand, pay growth picks up by more than anticipated, monetary policy may need to be tightened to a greater degree than the gently rising path implied by market yields.”
It comes after data on deposit rates from the Bank of England for December 2016 revealed that average returns on instant access accounts have fallen from 0.25 per cent in November to 0.15 per cent in the last month of the year.
Kevin Caley, chairman of peer-to-peer business loans lender ThinCats, said alternative finance firms would continue to provide access to products but called on bigger lenders to play their part.
“By keeping interest rates at their current level and providing extra funding for financial institutions in the form of quantitative easing, the Bank of England is undoubtedly trying to create a stronger environment for business lending, but the strategy will only work if the UK’s biggest lenders also take steps to improve borrowing conditions,” Caley said.
“There is currently a £4bn annual business funding gap in the UK and while alternative finance sectors such as P2P are helping to chip away at this huge deficit, the UK needs a collaborative effort from government and industry to oil the gears that give SMEs access to the finance they need to grow. Only then will we see GDP continue rise at its current level.”
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Other commentators expect savers will need to get more savvy. Dominic Baliszewski, director of consumer strategy for financial management app Momentum UK, said anyone looking for a good earning rate on their money might want to look outside of traditional savings accounts for a solid return.
“With the economy continuing to outperform the Bank’s expectations, the above-target inflation rate might spark consideration for a change in the interest rate in the very near future,” he said.
“In the meantime, it falls on savers themselves to be savvier than ever to find real returns.”
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