Friday, 11 September 2015

Savers beware

The Bank of England yesterday announced [as expected] that interest rates would not change and remain at the ludicrously low 0.5% which means we are not producing enough, we are not spending enough and of course who would save at 0.5%.

On the other hand the Treasury is quietly getting on with it. It quietly announced yesterday that it was unveiling its Autumn Statement alongside its spending review on November 25, and getting on with it means cutting spending. The summer Budget this year went as smoothly as the Chancellor had hoped, in part because there was no official analysis of the impact of his national living wage on in-work benefit cuts.

But since then there have been think tanks number crunching and today the IFS verdict is that the NLW offsets just 13% of the other cuts to household income in the Budget. And that 13% is exactly the same figure the Resolution Foundation came up with recently.

For a short period of very low interest rates, savers might be prepared to dip into their capital to maintain their spending. But the longer this period of extremely low interest rates continues, the more likely it is that savers will start to cut back to reflect their lower income. So the benefit that the economy receives from low borrowing costs is offset by lower spending from savers, and this low rate has been in place for over eight years.

So what exactly has to happen to get decent rates?

No comments:

Post a Comment