Rate goes up, but banks still don’t reward savers

BANKS came under fire last night for using the first interest rate hike in a decade to hammer borrowers but do nothing for longsuffering savers.

The Bank of England yesterday raised rates from 0.25 per cent to 0.5 per cent – adding £180 a year to repayments on a typical variable mortgage.

Governor Mark Carney suggested two further increases would follow over the next three years to bring inflation back under control, taking rates up to 1 per cent in 2020.

Yesterday’s rate hike – the first since July 2007 – triggered an immediate increase in bills for 1.4 million families with tracker mortgages. A further 2.3 million households on other variable rate mortgages are likely to see their monthly bills increase in the coming days as lenders pass on the central bank’s rate rise.

But there is no guarantee Britain’s army of savers will benefit from higher returns on their nest eggs after a dismal decade of pain since the financial crisis.

Last night banks were accused of using the rate hike to boost their profits – with one analyst predicting a £500 million windfall. They are now under huge pressure to pass on the rate rise to hard-pressed savers, with the Prime Minister and Mr Carney leading the calls for action.

High street banks Lloyds and Barclays yesterday raised their standard variable mortgage rates by 0.25 percentage points while their savings rates remained unchanged. Rivals Royal Bank of Scotland, Santander and HSBC refused to reveal what they would do to their saving rates – merely saying they were under review.

But four of Britain’s biggest building societies – Nationwide, Coventry, Yorkshire and Skipton – gave their savers a boost by announcing rate increases from the start of next month.

Theresa May’s official spokesman said: ‘Following the rate rise we would expect to see higher interest rates to be passed on to savers. Some banks have already said they will pass on the increase to savers and we would expect others to follow suit.’

Mr Carney added: ‘We do expect it to be passed on. Banks did pass on the cuts to their depositors, and we expect competition to push it in the other direction. Obviously we will be watching closely.’ Explaining the rate rise, the Bank said the worst of the squeeze on living standards was over.

Signalling that families will start to feel better off by Christmas despite the prospect of higher mortgage costs, it said inflation had peaked and wages were starting to pick up, relieving pressure on household budgets.

The upbeat assessment came as the Bank trimmed its outlook for unemployment and forecast steady economic growth over the coming years as Britain leaves the European Union.

However, Mr Carney added that uncertainties stemming from the Brexit vote continued to weigh on the economy.

Ian Gordon, analyst at Investec, said Barclays, HSBC, Lloyds and NatWest owner Royal Bank of Scotland were expected to pocket £500 million between them as they increased what they can earn from lending to borrowers.

The Bank last raised rates in July 2007, from 5.5 per cent to 5.75 per cent. At the time, the average easy access savings account paid 4.05 per cent in interest, according to Moneyfacts. Today, this has plummeted to 0.39 per cent, meaning savers’ cash is losing value as inflation is expected to have hit 3.2 per cent last month.

Former pensions minister Baroness Ros Altmann said last night: ‘It’s so frustrating to see the banks taking advantage of their privileged position, and not passing on a rate rise when they were so quick to pass on any rate cut to savers.

‘It’s depressing but not surprising, and I hope that the attitude of banks will start to change if we get further rises.’

Justin Modray, of Candid Money, said: ‘It’s a classic case of banks lining their own pockets before they pass any benefits on to savers. They’re looking after themselves instead of customers.’

An estimated 93 per cent of adults in the UK have a cash savings account.

Lloyds, Britain’s biggest mortgage lender with more than 3 million borrowers, hiked its standard variable rate – the rate borrowers move on to after their fixed deal ends – by 0.25 percentage points following the Bank’s announcement. But Lloyds refused to commit to increasing rates for savers. A spokesman said the situation was ‘currently under review’. Barclays followed soon after by increasing its standard variable rate by 0.25 percentage points to 4.99 per cent from December 1. It refused to reveal whether it would increase its variable savings rates.

TSB confirmed its standard variable rate would increase by 0.25 percentage points to 3.99 per cent on December 1. It will also increase its savings rates – but by just 0.15 percentage points.

Nearly 4 million households face higher mortgage interest payments following the hike, but Mr Carney stressed the impact will be modest and gradual, with around 60 per cent of borrowers on fixedrate deals.

Industry body UK Finance said 2.6 million first-time buyers had taken out a mortgage since the rate rise in 2007. Mr Carney said the ‘sheer novelty of the first increase in the Bank rate in a decade creates some uncertainty around its impact’.

‘We will be watching closely’