13th July 2016
Markets are pricing in an 80% chance of a rate cut from the Bank of England 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% to 5.75%, 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 Hargreaves Lansdown estimates that savers have lost out on £160 billion in interest on their cash accounts.
Since rates were cut to 0.5% in March 2009, the average instant access account has gone backwards in real terms, falling behind CPI inflation by over 12%.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown says: “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.”
Khalaf warns that things may soon start to look even bleaker for cash savers. He adds: “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%):
|total return since 5th March 2009|
|FTSE All Share||161.2%|
|UK Nationwide House Price Index||34.9%|
|Moneyfacts Average Instant Access Cash||4.7%|