Savings Champion

Bank of England base rate unchanged at 0.50%

As expected, The Monetary Policy Committee (MPC) has this week (21/06/2018) voted by a majority of 6-3 to maintain the base rate at 0.50%. Whilst we were not expecting a rise this month, many experts are predicting a rise to be announced at the next meeting on 2nd August.

Of course, these predictions are changing all the time, but it’s encouraging that one more member of the MPC did vote for a rise this time around – at the last meeting it was a 7-2 vote to keep the base rate at its current level.

Chief economist Andy Haldane joined Ian McCafferty and Michael Saunders, who are both external members of the MPC, in voting for an increase.

The UK’s decision is in stark contrast to the United States, where the Federal Reserve has raised rates twice this year and plans to do so twice more.

However, Britain was the slowest-growing major economy last year, caused by Britain’s vote to leave the EU and the weaker pound. According to The Express “Businesses held back from investing ahead of Brexit and high inflation triggered by the 2016 referendum eroded households’ disposable income.”

Since then, the UK’s economic figures have been mixed – but Haldane, McCafferty and Saunders believe the economy is recovering from the slowdown in the first three months of the year.

According to the minutes of the MPC meeting "These members had a higher degree of confidence that the slowdown in Q1 was temporary or erratic and would be largely unwound”.

Let’s hope that the economic indicators continue to support this.

But while a base rate rise would be a really welcome move and should help savers, you still need to be vigilant, as the providers may not increase rates by as much as hoped.

In December 2012, the average easy access rate for accounts available to open was 0.74%. Today, that average rate is just 0.41% - even though the base rate is at the same level as back then. Of course, there was that 15 month period where the base rate dropped to 0.25% following the result of the EU referendum. But the average is up by just 0.06% since September 2017, even though the base rate increased by 0.25% since then, back to 0.50%.

This harsh environment for savers was caused, in the main, by the introduction of the Funding for Lending Scheme (FLS) in 2012, further exacerbated by the introduction of the Term Funding Scheme (TFS) and then a base rate drop in August 2016. The good news for savers is that the FLS and TFS taps were switched off earlier this year, so perhaps providers will start to need funds from savers once more. This, as well as a couple of Bank of England base rate rises, will hopefully make a real difference.

However, although highly unlikely, even if the banks and building societies were to raise the rates on all accounts by the same level as the rise in the base rate, many savers will still be worse off in comparison to five years ago, especially if they are with a high street bank, many of which have cut their rates to the bone.

So, whilst we are waiting for these positive things to happen, the best way to minimise the pain is to shop around and move your cash if you could do better elsewhere. Competition has been rife over the last couple of years or so and best buys have increased steadily, without a true base rate rise.

If you are unlucky enough to be in one of the rock-bottom accounts paying just 0.10% or less, by switching today to the best buy easy access account, you could increase the interest you are earning by up to 1.23% gross – nearly five times that of a base rate rise of 0.25%. Take a look at our table below to see how much better off you could be by switching your savings from your bank.

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