Yorkshire Post: Savers face more misery as Bank gives priority to housing
Wed 07 Aug 2013
Govenor sets jobs threshold for rate cut.
The Bank of England's confirmation that historic low interest rates are here to stay should boost the revival in the housing market, but savers will pay the price by suffering years more misery, experts have predicted.
New govenor Mark Carney said interest rates will remainat their record low until unemployment falls below 7 percent.
Unveiling a new strategy forward guidance, he added that rates will remain at 0.5 per cent until at least the end of 2016 unless inflation riases sharply.
Mr Carney said that a "renewed recovery is now under way" as the Bank predicted 0.6 per cent growth in the third quarter and said inflation is unlikely to rise above 3 per cent this year - lower than previous fears of about 3.5 percent.
Experts said lower-for-longer interest rates could result in already ultra low morgage deals being made even more attractive.
But desperate savers were warned that they may need to consider taking on more risk if they want to make decent returns on their cash.
Peter Rollings, chief executive of estate agent Marsh & Parsons said the indication that rates will stay at historic lows for at least another year will give another "significant boost" to the housing market, which has already been gathering pace as confidence has risen in recent months following various Government schemes.
Lenders have been offering some of their lowest ever mortgage rates since the Government launched a scheme one year ago called Funding for Lending, which gives lenders access to cheap finance.
Another scheme called Help to Buy, which will be fully launched next year, is set to offer an extra helping hand to mortgage borrowers with smaller deposits in particular.
Mr Rollings said: "This is a highly important statement which will allow lenders to offer attractive fixed rate deals to potential buyers and will surely lead to greater demand and activity in both the resale market and provide a flip for first-time buyers."
Matthew Whittaker, senior economist at the Resolution Foundation said about 600,000 families are"highly sensitive" to future borrowing costs as they currently spend more than half their net income on repaying their debts.
He said: " Sharper than expected rises in inflation would have serious consequences for highly-indebted families and the economy more widely."
But savers campaigners reacted angrily at the commitment to low interest rates.
"Savings rates have already plummeted in the low interest rate environment and savers have struggled to find any accounts that will even keep up with inflation, meaning the real value of their cash has been eroding.
Simon Rose, spokesman for campaign group Save our Savers, said that low interest rates are harming the economy by damaging savers' ability to spend.
He said: "The Bank of England has failed to meet its inflation target for most of the past seven years. Now it clearly has decided to ignore even higher price rises, inflicting continuing misery on the majority of Britons, in the hope that the same policies that have failed the country since the crisis will somehow magically work in the future."
Patrick Connolly, of financial advisers Chase de Vere, said the "ongoing dilemma" for savers is whether to accept that the spending power of their money is continuing to be eroded or opt for riskier investments.