No surprise as interest rates on hold for another month

Posted on January 10th, 2013 | Categories - News

No surprise as interest rates on hold for another monthThe Bank of England has decided to keep interest rates on hold for another month and will inject no further money into the economy via Quantitative Easing (QE).

Bank base rate has been stuck at 0.5% for nearly four years and with some economists predicting the economy will contract at the start of 2013, raising the possibility of a triple dip recession, any movement in interest rates is highly unlikely in the short or even medium term.

Disappointed savers

Neither decision comes as a surprise, although it will disappoint savers who currently have to cope with a triple attack on their savings.

Firstly, interest rates were already at historical lows with bank base rate stuck at 0.5% since the financial crisis.

Secondly the Funding for Lending Scheme (FLS), which provides a cheap source of wholesale finance, has pushed interest rates on all savings accounts even lower, as banks and building societies have less need to attract deposits from savers when they can get ‘cheaper’ financing from the FLS.

Thirdly, with the current levels of inflation and interest rates plummeting, it is impossible for even a basic rate tax payer to get a real return, that’s to say above inflation, on their savings.

Of course, other groups, such as businesses and people with mortgages linked to the Bank of England base rate will welcome the news that rates will stay low for yet another month.

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