THE BANK of England held interest rates at historic lows today, further straining Britons’ finances and making a stronger case for higher-return options than cash accounts.
The central bank’s monetary policy committee held headline rates at 0.25 per cent on Thursday, confirming expectations that rising inflation and stretched households’ income would not be enough to sway policymakers towards a more hawkish stance.
This means consumers’ purchasing power is increasingly being eaten away by a lethal mix of higher prices, minimal returns on savings and economic headwinds down the line, critics warned.
“We are in the midst of a silent savings crisis in the UK. With inflation currently at 1.8 per cent there’s about £7.98bn being quietly wiped off Britain’s £700bn cash savings pot each year, thanks in no small part to the persistently low base rate set by the MPC,” said Richard Theo, chief executive of financial advisory firm Wealthify.
The committee’s vote did however signal a slight tightening bias, said Howard Archer, chief UK and European economist at IHS Markit, and marked the first non-unanimous monetary decision since July last year.
Kristin Forbes, one of the nine members of the committee, called for a rate hike to 0.5 per cent, and the panel of central bankers said it will consider reviewing its stance if pay growth remains limited and consumer spending slows further.
“Given major uncertainties over the UK economic outlook nothing can be ruled out on the interest rate front,” said Archer.
“Clearly if growth does hold up pretty well, the less likely the Bank of England will be to tolerate the inflation overshoot and could be prompted into hiking interest rates sooner rather than later.”
However, Theo called on UK savers not to count on monetary decisions to protect their income and urged them to start picking better options than cash savings accounts.
“By keeping rates on hold again today, the committee continues to ignore the plight of ordinary savers,” he said. “It’s yet another nail in the coffin for cash savings accounts that have been made as good as obsolete as a way for people to grow their money.
“But it doesn’t have to be all doom and gloom. If Brits would just shake off their savings inertia they would realize there’s a wealth of alternative ways to grow their money out there that are hassle-free, affordable and can give them good long-term, inflation-beating returns.”
Octopus Investments recently warned that money deposited in the average high street savings account will be worth less in real money within the next two years, if central bankers continue shying away from a rate hike.