Bank of England ‘needs to do more’ in pandemic says expert
Interest rates are very low at the moment, with savers unlikely to find many deals offering more than one percent on retail bank accounts. Currently, the Bank of England has the base rate at 0.1 percent which limits what regular financial service firms can offer and the central bank is set to review interest rates on February 4.
With the base rate being at 0.1 percent, the Bank of England are unlikely to have any more capacity for further cuts and as such, many experts and organisations predict they may have no choice but to move interest rates into negative territory.
This could have huge ramifications for the economy which, at the more extreme end of the scale, could result in savers having to pay to keep their money with their banks.
This prospect is worrying savers across the board according to new research from Aldermore.
In December, the banking firm conducted research using a nationally representative sample size of 4,011 UK adults.
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The survey revealed:
- Nearly a quarter (23 percent) of British people are concerned about the implications of negative interest rates on their savings
- More than one in seven (15 percent) said they expected interest rates to hit zero percent or go negative at some point in 2021
- Over one in 10 (12 percent) said negative interest rates will dissuade them from wanting to save
- However, 15 percent said interest rates are so low at the moment that negative interest rates wouldn’t make any difference to them
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Ewan Edwards, a director of savings at Aldermore, commented on these findings: “After a challenging year for savers, the potential introduction of negative interest rates is unsurprisingly a concern for those hoping to achieve savings goals and build up financial resilience in 2021.
“If a negative interest rate scenario were to occur, savers may need to be more proactive in shopping around for the best rates and moving money to providers that can give the most benefits, if savings goals are to be reached.”
Regardless of which way the base rate moves, savers will likely be watching carefully and adapt their priorities accordingly.
Aldermore’s research found that previous Bank of England interest rate decisions had an impact upon savers’ motivations.
Following the decrease in rates from 0.25 to 0.10 percent in March 2020, one in seven (14 percent) UK adults said it made them less inclined to save.
Among those that were encouraged to save less, over half (57 percent) said it is because they will earn less interest on their savings.
While the Bank of England has detailed they do not intend to introduce negative rates in the coming months, they have taken certain actions which indicate possibility.
In late 2020, Andrew Bailey, the Governor of the Bank of England, was questioned by a Treasury Select Committee and when the topic of negative rates came up he detailed the option was “in the box of tools”.
More recently in mid-January, Silvana Tenreyro, a member of the monetary policy committee (MPC) at the Bank of England, highlighted her views on the effectiveness of negative interest rates.
In a speech delivered to the University of the West of England, Silvana confirmed the following: “My overall assessment is that, while we can never have complete certainty, negative interest rates should with high likelihood boost UK growth and inflation.
“Cutting the bank rate to a record low of 0.1 percent has helped loosen lending conditions relative to the counterfactual, and I believe further cuts would continue to provide stimulus.”
On top of this, it should be remembered that the Bank of England also wrote to retail financial firms in recent months asking for an assessment of their preparedness of a potential negative rate environment.
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