Savers still suffer
■Interest rates up to highest level since crash ■But not a SINGLE bank passes on rise to families
BRITAIN’S biggest banks were under fire last night after failing to pass on the rise in interest rates to millions of long-suffering savers.
The Bank of england yesterday increased rates from 0.5 to 0.75 per cent – their highest level since the financial crisis almost a decade ago.
The hike, announced by Bank of england governor Mark Carney, immediately pushed up monthly bills for the 1.3million mortgage holders with deals that track the base rate. Another 1.8million borrowers with standard variable rate mortgages are likely to see an increase within days.
Some customers told the Mail they had been sent text messages by their mortgage providers within minutes of the Bank of england decision warning that their monthly bills will rise.
homebuyers will also face higher repayments on new fixed-rate mortgage deals, with some banks having pushed them up in anticipation of yesterday’s hike.
But by last night, not a single big bank had pledged to pass on the interest rate rise in full to savers. Just one building society – Skipton – said that it would.Tory MP Simon Clarke, who sits on the Treasury Select Committee, said: ‘After many years of record low returns it is absolutely vital that savers see the benefits at long last. It is right that people who try to do the right thing and save are rewarded.’
Former pensions minister Baroness Ros Altmann said: ‘Banks need to pass on this rate rise to savers immediately. When rates were falling, banks cut savings rates straight away, so surely they should move just as quickly now rates are rising.’
When interest rates were last increased in November last year, from 0.25 per cent to 0.5 per cent, fewer than half of the UK’s 3,238 savings rates saw any increase at all, according to consumer group Savings Champion. Many of those which did take action gave savers only a paltry boost far below the 0.25 point rate increase. For example, Hsbc’s Flexible Saver rate rose by just 0.04 points – from 0.01 per cent to 0.05 per cent. That works out at an extra 33p a month interest on a £10,000 deposit.
Yesterday, Mr Carney said that lenders were facing financial pressures at that time, but warned this excuse will not be tolerated in future. he said: ‘We will be watching closely to make sure this market is operating competitively.’ Announcing the rate rise, Mr Carney said the UK’s economic growth is robust. he added: ‘The labour market is strong. Unemployment is at a 42-year low and is projected to fall a little further.’
But the Bank of england’s ratesetting Monetary Policy Committee said this record-low unemployment will mean businesses have to compete aggressively for staff. This means interest rates will have to rise again to prevent increased wages from forcing up prices in shops and triggering a jump in inflation.
however, Mr Carney said the increase in rates will be ‘gradual’, with City analysts predicting small rises over the next three years until they reach 1.1 per cent in 2021. The MPC also said lower productivity growth since the financial crisis means, over the long-term, average interest rates are likely to be between 2 per cent and 3 per cent.
Stephen Jones of trade body UK Finance said: ‘The base rate is an important factor in determining the cost of funding for the financing provided by banks. Lenders will now need to assess the impact of their increased funding costs.’
IT’S always the same story. The instant the Bank of England raises its base lending rate, the High Street banks push up their loan rates by at least the same amount.
But for the poor savers, those people whose money has traditionally formed the bedrock of the banking system, there is little or no good news.
And so it was again with yesterday’s rate rise.
Mortgages went straight up but not a single bank said it would give a boost to savers – despite a warning from Bank of England Governor Mark Carney that such profiteering would no longer be tolerated.
The truth is that the banks are able to treat their savers with such contempt because quantitative easing, funding for lending schemes and historically low interest rates have given them a constant supply of cheap money.
But that will not last forever. The time will come when savers will again be needed to keep the financial system afloat. The banks should be careful that, when that time comes, there will still be enough savers left. Meanwhile, Mr Carney announced the rate rise was necessary because record employment in our robust economy was leading to wage inflation. So whatever happened to the dire predictions of economic Armageddon if we voted for Brexit?