Low interest rates ‘for 20 years’

Low interest rates for savers could last for another two decades, a Bank of England policymaker has said.

Ian McCafferty, who sits on the Bank’s monetary policy committee (MPC), said savers should expect rates to stay well below 5 per cent, even though borrowing costs may rise in the near future.

Mr McCafferty said savers should be prepared for ‘significantly’ lower interest rates than in the years before the recession. ‘It is too much to say never, that we won’t ever go back. But there is a 20-year horizon under which there will be factors keeping it low,’ he told The Guardian. ‘If the economy continues to evolve as we [the MPC] expect, we are not going to get back to 2 per cent inflation unless we have a modest but gradual reduction in the stimulus that has been provided.’

Mr McCafferty, who is due to leave his post later this month, also said wages could increase by almost 4 per cent by next year due to labour shortages as the unemployment rate fell to its lowest in more than 40 years. He said: ‘The labour market has shown significant signs of tightening in recent months. Surveys and other measures are pointing to labour shortages as a constraint on output growth.’

The outgoing MPC member said there could be two rate rises in the next two years. He added that consumers had not been affected by Brexit uncertainty as much as businesses, and said Brexit could pose ‘huge risks’.

Mr McCafferty’s forecast came as it was revealed only one out of 100 banks and building societies had passed on the recent interest rate rise to its customers.

Beverley Building Society was the only one to pledge to match the Bank of England’s base rate of 0.75 per cent.

While HSBC and Barclays have increased their mortgage costs by the rate rise, they have yet to pass on the increase to savers.