- The last interest rate rise was on 5th July 2007, nine years ago.
- Savers have lost out on £160 billion in interest on their cash accounts since 2008.
- It’s hard to see the tables turning for the foreseeable future with the Bank of England getting ready to crank the handle again.
The first interest rate decision by the Bank of England since the EU referendum result, and markets are pricing in an 80 percent chance of a rate cut, with many expecting a resumption of the central bank’s Quantitative Easing programme.
The last interest rate rise was on 5th July 2007, from 5.5 percent to 5.75 percent, nine years ago. Given current interest rate expectations, it now looks like the UK will endure a decade without a rate rise. This has been a tough period to be a cash saver. Since October 2008 we estimate savers have lost out on £160 billion in interest on their cash accounts (compared to the interest rate they were receiving in October 2008).
Since rates were cut to 0.5 percent in March 2009, the average instant access account has gone backwards in real terms, falling behind CPI inflation by over 12 percent. Laith Khalaf, Senior Analyst, Hargreaves Lansdown: ‘We’ve had two Chancellors, three Prime Ministers and two Governors of the Bank of England since the last interest rate rise. Given the current economic outlook, there could well be further changes at the top before we see another interest rate rise.
Meanwhile savers have seen an axe taken to the income they used to enjoy on their cash holdings. Some assets have benefited from the low interest rate environment however, chief amongst them the stock market and the bond market. Indeed part of the reason there is such cynicism over the bull market in stocks we have seen since 2009 is the perception it has been driven by cheap money from the central bank, rather than genuine economic progress. However, with the Bank of England getting ready to crank the handle again, it’s hard to see the tables turning for the foreseeable future.
Likewise the property market has been supported by low-cost mortgages, boosting house prices, and relegating a generation of younger people to living in rented accommodation. Remarkable as it seems, things may soon start to look even bleaker for cash savers. Any further small cut in interest rates isn’t going to have a material impact on their income, but if a weaker pound leads to higher inflation, cash on deposit will start going seriously backwards in terms of buying power.’
Asset returns since 5th March 2009 (when base rate was cut to 0.5 percent):