Savers miss out as interest rates stagnate
11 May 2018 London
Image: Shutterstock
Savers miss out again as interest rates stagnate, according to Angus Dent, CEO, ArchOver.
The Bank of England’s inflation report revealed interest rates of 0.5 percent, which is cutting the UK’s growth forecast, according to Dent.
Dent explained: “Rates are stagnant despite recent talk of a rise, and savers are once again missing out in a deeply uncertain economic environment.”
The decision to maintain bank rates at 0.5 percent came after a majority vote of seven to two by the Monetary Policy Committee (MPC).
The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.
It stated in the Monetary Policy Summary that the MPC sets monetary policy to meet the 2 percent inflation target, which in a way helps to sustain growth and employment.
In the summary, it outlined: “In the exceptional circumstances presented by Brexit, as specified in its remit, the MPC has been balancing any significant trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity.”
Dent commented: “With Britain’s GDP growth at just 0.1 percent, it’s no surprise that the Bank of England has kept interest rates stagnating at 0.5 percent. Just last month a rate rise seemed a foregone conclusion.”
He continued: “Today’s decision is yet another result of the uncertainty surrounding the UK’s financial health. And keeping rates so low means savers lose out once again.”
Dent added: “Savers leaving their cash languishing in savings accounts in the vain hope of a rate rise will be sorely disappointed. With the economy in the doldrums, it’s time for a serious rethink—crossing your fingers and hoping for the best does not equal a productive savings strategy.”
Dent warned: “Savings accounts are no longer a safe bet for decent ROI. Consider alternative financing options that can offer higher yield without compromising on security. Optimism is all well and good – but we all need a healthy dose of realism if we’re going to make our money work harder.”
Commenting on the bank's decision, Paul Mumford, Cavendish Asset Management, said: “On one hand this decision makes a lot of sense, at least in the short-term. You wouldn’t normally want to do anything to stifle demand in a fragile, wobbling economy like this, and a rate rise at this juncture could simply make matters worse.”
Mumford added: “But of course we’re not in a normal situation. A decade of constant easing and rock-bottom rates has left us in a situation, not unlike an addict deciding when to quit. The BoE is clearly erring on the side of caution and hoping that conditions in August are more favourable for a rise. But what if they’re not?”
“With US rates on a firm upward track we will have to start raising soon – the Bank of England seems to be waiting for an ideal time to make an impossible choice, but that may never come. And waiting for it could prove the worst decision of all.”
Mumford continued: “For instance, the bank’s decision was partly motivated by a drop-off in the inflation forecast. But should oil prices stay at their current levels this could prove mistaken – inflation could easily tick back, and quickly.”
“The MPC - rightly - wants to ensure that rates rise in a steady, incremental, telegraphed manner. But the longer it holds off beginning the ascent, the larger the danger of being caught suddenly on the back-foot and the larger the danger of sudden, sharp, unexpected rise.”
Concluding, Mumford said: “In the meantime, keeping rates where they are will keep money in people's’ pockets and should provide some support to domestic stocks in the short-term."
The Bank of England’s inflation report revealed interest rates of 0.5 percent, which is cutting the UK’s growth forecast, according to Dent.
Dent explained: “Rates are stagnant despite recent talk of a rise, and savers are once again missing out in a deeply uncertain economic environment.”
The decision to maintain bank rates at 0.5 percent came after a majority vote of seven to two by the Monetary Policy Committee (MPC).
The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.
It stated in the Monetary Policy Summary that the MPC sets monetary policy to meet the 2 percent inflation target, which in a way helps to sustain growth and employment.
In the summary, it outlined: “In the exceptional circumstances presented by Brexit, as specified in its remit, the MPC has been balancing any significant trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity.”
Dent commented: “With Britain’s GDP growth at just 0.1 percent, it’s no surprise that the Bank of England has kept interest rates stagnating at 0.5 percent. Just last month a rate rise seemed a foregone conclusion.”
He continued: “Today’s decision is yet another result of the uncertainty surrounding the UK’s financial health. And keeping rates so low means savers lose out once again.”
Dent added: “Savers leaving their cash languishing in savings accounts in the vain hope of a rate rise will be sorely disappointed. With the economy in the doldrums, it’s time for a serious rethink—crossing your fingers and hoping for the best does not equal a productive savings strategy.”
Dent warned: “Savings accounts are no longer a safe bet for decent ROI. Consider alternative financing options that can offer higher yield without compromising on security. Optimism is all well and good – but we all need a healthy dose of realism if we’re going to make our money work harder.”
Commenting on the bank's decision, Paul Mumford, Cavendish Asset Management, said: “On one hand this decision makes a lot of sense, at least in the short-term. You wouldn’t normally want to do anything to stifle demand in a fragile, wobbling economy like this, and a rate rise at this juncture could simply make matters worse.”
Mumford added: “But of course we’re not in a normal situation. A decade of constant easing and rock-bottom rates has left us in a situation, not unlike an addict deciding when to quit. The BoE is clearly erring on the side of caution and hoping that conditions in August are more favourable for a rise. But what if they’re not?”
“With US rates on a firm upward track we will have to start raising soon – the Bank of England seems to be waiting for an ideal time to make an impossible choice, but that may never come. And waiting for it could prove the worst decision of all.”
Mumford continued: “For instance, the bank’s decision was partly motivated by a drop-off in the inflation forecast. But should oil prices stay at their current levels this could prove mistaken – inflation could easily tick back, and quickly.”
“The MPC - rightly - wants to ensure that rates rise in a steady, incremental, telegraphed manner. But the longer it holds off beginning the ascent, the larger the danger of being caught suddenly on the back-foot and the larger the danger of sudden, sharp, unexpected rise.”
Concluding, Mumford said: “In the meantime, keeping rates where they are will keep money in people's’ pockets and should provide some support to domestic stocks in the short-term."
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