Apart from the reduction to the maximum allowed into the NS&I Guaranteed Income and Growth Bonds, this week’s savings news has surrounded the questions about what will influence the next base rate decision.
According to an article in The Times at the weekend, a recent survey from the Bank of England suggests that 25% of those polled have no idea about the direction that interest rates will take over the next 12 months. That means that 75% think they do know!! I’m not sure even Mark Carney knows this much, but only time will tell.
The article also alluded to the so-called base rate rise that occurred in November – but I just don’t think of that as a rise – it was simply seeing the rate put back to where it had been before the knee jerk reaction to the Brexit referendum result. All that happened was that the banks and building societies took the opportunity to drop rates and then not increase them by as much when the base rate reverted to 0.50%.
Before the cut in August 2016, the average rate for easy access accounts that were available to open was 0.49%. Today the average rate is just 0.41% - a fall of 16%. And closed accounts (those existing accounts no longer available to open) have been hit even harder, with the average easy access rate falling from 0.60% to 0.48% today.
So once again: Banks and Building Societies 1 – Savers 0!!!
With CPI inflation apparently staying at 2.40% in May, this could be this week’s reason why the much-anticipated base rate rise might be delayed – again!
Talking of inflation, who says the rate hasn’t increased? I can’t believe how expensive it now is to fill up my car with petrol – petrol prices are up 8 per cent over the course of the year. Perhaps it’s the fact that I don’t play video games – as competition in this market is driving prices down - which is a key factor for CPI remaining the same in May. Of course, real inflation is a very personal thing, CPI doesn’t include housing costs, such as Council Tax for example.
Another reason why it’s going to be really tough for the Bank of England to raise the base rate is because, rather than taking advantage of low interest rates to pay off debt, people are borrowing more than ever. But according to an article in The Daily Telegraph on Saturday rather than ‘subprime’ lending to the poorest in society, the driving force behind the increase is the middle class, with “excellent” credit ratings. Perhaps they will be able to manage a couple of interest rate rises – but these consumers really need to understand just how devastating it could be if they are overstretching themselves.
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