One of the key themes in the financial press this week has been the drop in the maximum limit on the NS&I Guaranteed Income and Growth bonds that we reported on last week. According to The Times on Saturday “The rich have been left in shock” although those who already have large amounts in the bonds can still roll over the whole lot at maturity.
The good news is that, as we and other experts pointed out, there are other providers offering better rates – although the wealthy will need to choose to either split their funds between a number of providers to keep all their cash protected or choose a provider that they are comfortable with and accept that some of their money could be at risk.
The Sunday Express (17/06/2018) went on to remind savers of the importance of choosing the best rates in order to mitigate some of the damage that inflation can inflict on their cash.
As there was a base rate decision on Thursday this week, there also were plenty of articles leading up to that, not only about what to expect from the Bank of England, but also what is happening to interest rates in the United States and Europe.
As was expected, the MPC did keep the base rate on hold at 0.50% on Thursday (21/06/2018) and according to an article in The Times last Saturday, analysts at Capital Economics think “The MPC will probably want to wait at least a few more months for news on the economy’s health before hiking rates”.
Although, according to an article in The Sunday Times (17/06/2018), fears that central bankers are out of touch with the real economy has prompted the Bank of England to seek ‘folk wisdom’ from ordinary people. So, there will be some regional focus groups to hear the thoughts of members of the public.
In contrast, the US Federal Reserve was one of the first central banks to decide that its economy could withstand an increase and last week raised rates for the seventh time since December 2015 and has signalled a further two rises this year and another three in 2019.
At the same time, the European Central Bank has announced that it will end its €2.5 trillion bond buying programme by the end of the year, although it added that it didn’t expect to raise rates until late next year at the earliest. We think we’ve got it bad – the ECB interest rate is currently -0.40%.
While us savers are all looking forward to the first true base rate rise in a decade, it’s vital that other segments of the economy are aware that it is hopefully only a matter of time now. Because with borrowing continuing to rise, homeowners who have grown used to cheap borrowing could have a horrendous problem when rates do rise. Even if they are currently on a fixed rate loan, what will they do at the end of the term?
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