Savers brace as Bank dithers on interest rate cut

LONG-SUFFERING savers could be hammered this week by an interest rate cut despite signs the economy is perking up.

The Bank of England’s decision on Thursday – to hold rates at 0.75pc or cut them to 0.5pc – is said to be on a knife edge. A cut by the bank’s Monetary Policy Committee would be a hammer blow for savers who have already suffered more than a decade of dismal returns on their nest eggs. But it would be a boon for borrowers, slashing the cost of mortgages even further. Mark Gregory, UK chief economist at Ernst & Young, said: ‘The decision looks to be on a knife edge and is very hard to call. There may be some improvements in the economy, but it’s not time to pop the champagne.’ Some experts believe that the Bank should hold fire amid signs the economy has perked up since the General Election last month when Boris Johnson won a convincing parliamentary majority. And the Bank may not wish to act so close to Britain’s departure from the EU the following day, the Budget on March 11 as well as a change of governor that month.

A string of reports last week showed a rebound in business confidence, increased activity in the housing market and employment at a record high.

The International Monetary Fund tips Britain to be the third strongest-performing G7 economy over the next two years – behind the US and Canada but ahead of Germany, France, Italy and Japan.

Philip Shaw of Investec said the decision was ‘the least predictable for some time’.

More than a decade of low interest rates has left borrowers with some of the cheapest mortgages on record. But low rates spell misery for savers, with the average easy-access account paying interest of just 0.58pc – well below inflation of 1.3pc.

Economists at Bank Of America said they now expect the Monetary Policy Committee (MPC) to cut rates this week having previously thought the Bank would wait until May. But James Smith, an economist at ING, said: ‘Markets are divided on whether the Bank of England will cut interest rates.’

Rachel Springall, finance expert at Moneyfacts, added: ‘Savers will be impacted fairly quickly if there is a base rate cut, so there may well be those concerned by the murmurings of a rate cut. Borrowers have an abundance of attractive deals to choose from right now.

‘It is uncertain whether the MPC will make any fundamental changes, though, and if they do hold off, it may be that March is the month to keep an eye on.’